聯合利華 (UL) 2003 Q2 法說會逐字稿

Welcome to Unilever's 2003 Second Quarter and Half-Year Results Conference Call. This Conference will begin with a Presentation by Mr. Rudy Markham, Finance Director. Followed by a question and answer session with Mr. Rudy Markham and Mr. Howard Green, Senior Vice President of Investor Relations.

At any time during the Presentation you may indicate your desire to ask a question by pressing '1' on your telephone keypad. Should you wish to cancel your question simply press '2'. Or if you need to speak with an operator press '0'. This Conference is being recorded and will be available for a period of 2 weeks. Details of the replay numbers and the access codes can be found on Unilever's website. An audio web cast of the Teleconference will also be available on Unilever's website at www.unilever.com. I will now hand you over to Mr. Markham. Please go ahead sir.

Ladies and gentlemen good morning and welcome to this Presentation of Unilever's Q2 and Half-Year Results. A transcript, 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 discussion are conducted subject to that disclaimer. I'll not read out the disclaimer but propose we take it as read into the records for the purpose of this Presentation and Conference Call.

Can I remind you that unless otherwise stated the financial numbers used in this Presentation are in euros, the constant rates of exchange, that is averaged 2002 rates.

Chart One of the books that I think you have shows the Agenda. Let me start by looking at our performance in the first half of 2003 with the key features shown on Chart 2.

The Leading Brands in the first-half of the year have grown by 3.1%, of which 1.4% is from underlying volume growth. HPC Leading Brands grew by 4.8% and those of Foods by 1.7%. Leading Brands at the end of the second quarter represented over 90% of the total business.

We continue to see good progress in Personal Care, Savory and Dressings and the Heart Health brands of Spreads. Whilst a good response to our revitalization of European ice cream has added to the momentum we've seen in D&E and the North American ice cream. In addition, our plans in Laundry and Tea are progressing well and in Food Solutions we see the strength of our business model, albeit it in weak market conditions.

However, planned growth for the first half year has been held back by the performance of Slim Fast, which has reduced growth by the equivalent of 70 basis points, secondly by a sharper than expected trade de-stocking, including the effect of some retailers facing financial difficulties, which has reduced growth by some 90 basis points.

This has been a particular feature of the US market and its main impact has been on our HPC business. De-stocking whilst a usual and planned for feature of the US market, has been particularly sharp as businesses had to adjust to lower than expected market growth rates. Whilst obviously having a negative effect on our sales growth, our aggregate market shares have remained stable.

Thirdly, by the market conditions in Prestige and Out of Home Channels, which have had an impact equivalent to some 40 basis points of growth. Not withstanding, we've continued to invest behind our brands and their innovation programs, in line with our overall plan for the year.

Underlying sales moved ahead by a little over 2% in the first half. This included the harvesting of the non-leading brands, which declined by 7.7%.

Including the net of acquisitions and disposals, sales in the half year of €23.5b or 2.5% below last year. We’ve seen a continued improvement in the underlying margins in the first half year driven by our procurement and restructuring program through improve mix. Gross margins and overhead combined show an improvement of some 140 basis points which has been partly reinvested in a step-up of A&P of 120 basis points reflecting the phasing of the investment plan in 2003, which is more even compared to last year.

Interest on net borrowing has reduced by €56m or by 9%. Reported interest charge includes €96m relating to the net FRS 17 cost of financing pensions. Net debt at closing rates is €16.1b and EBITDA interest cover is 8.5%.

EPS [BEIA] is ahead by 3.6% in the half year with 3.4% in the second quarter. With current exchange rates EPS [BEIA] is reduced by 6% in euros, however it has increased by 15% in US dollars and by 3% in pounds sterling.

Exceptional items in operating profit were a charge of €21m for the half year and they include €162m of profits from disposals. We remain comfortable with our outlook for the year of €500m of restructuring charges.

EPS grows by 16% in the half year but declines 12% in the second quarter given significant profits on the sale of businesses in the second quarter of 2002.

So let me now turn to the outlook for the rest of the year and get behind the update we gave to the market in June for leading brand growth in the year of some 4% and for low double digit EPS [BEIA] growth.

Firstly the leading brand growth on Chart 3. In the first half of the year we have leading brand growth of a little over 3%. To achieve our full-year outlook our plans call for leading brand growth of some 5% in the second half. We have an innovation plan for the year, which in aggregate is at least as strong as strong as last year in HPC and shows a step up in Foods.

The second half innovation and market place activity program is broad based. In Europe we have a strong program in Spreads, a number of initiatives in Knorr and Hellmann's, with an exciting plan for Ice Cream and will continue to support the roll-out of Sunsilk and new variants of Axe and Rexona.

In North America we'll build on the successful Axe launch, on a strong program for Suave and we'll continue to expand the Hellmann's franchises whilst also building on the expansion of Country Crock in yogurt based spreads and our extensive innovation program in Slim Fast.

In Latin America we have innovations in Sunsilk, a major re-launch of Lux Skin Care, we'll continue the rollout of Knorr into new markets. Whilst in Asia we have a broad based innovation program behind Lux, Lipton, Knorr, Sunsilk and Omo.

Finally we have an exciting program for Dove across the world. With the rollout of exfoliating bars, the launch of a Dove Face Care range in the US and continued support rollout of the shampoo.

In addition to this program whilst we expect the impact of the weak travel retail channels on prestige markets to continue we have assumed in our plan number of factors that held back growth in the first half will be less significant in the second half of this year. These include, firstly from a triangulation of market share positions retail sales information and the VLI data, we believe the sharp trade de-stocking in the US is largely behind us. In normal pattern of trade de-stocking for which, of course we plan is expected to continue. Secondly we expect a progressive recovery in Slim Fast as we resolve the trade promotional planning and pricing issues, combat competition and reap the benefits of the innovation program. Thirdly we expect to see a continuation of the recovery we've seen in Food Solutions in the second quarter. Fourthly in the first half we had one less trading day and in the second half we have one more. Taking these factors together they add approaching 3% to our first half growth rate, taking us to some 4% for the year and leaving us with some headroom whilst also recognizing the slightly tougher comparatives. Where we finally end up in terms of growth rate depends on the speed of recovery in Slim Fast and any positives that may accrue, particularly in D&E markets and from the success of our ice cream business in Europe over the third quarter.

Let me now turn to EPS growth. You'll remember with our 2002 full year results we showed how we were creating headroom in profit delivery to meet and respond to changes in the business and competitive environment. This comes through if we look at the drivers that allow us to continue to deliver low double digit growth, not withstanding lower than expected leading brand growth as is shown on chart 4. EPS [BEIA] growth for the first half of the year is 3.6% and delivery in the second half will be consistent with our overall target for the year, with the key drivers being restructuring savings, which are running at more than €100m per quarter and as such are well on track to deliver the €700m expected over 2003 and 2004. Secondly an improved mix, as we benefit from the greater proportion of higher margin categories, including Personal Care. Thirdly progress in the number of developing and emerging markets where we've taken pricing action to recover evaluation led cost increases and also where we have been seeing a stabilization of currencies in key markets. Finally in 2003 we now expect some €600m of savings from our global buying program, compared to the €450m communicated at the start of this year. In terms of A&P we expect investment as a percentage of sales to be at the level for the year similar to, or slightly ahead of that in 2002.

Let me explain why this is consistent with our overall strategy, the markets of 2003 and delivery of EPS growth, without compromise to business health. We manage through the sort of market conditions we see in 2003 in some geography by applying the following principles. Firstly we continue to support all our key innovations and market place activities in line with our original plan. Secondly in those markets where we experience less buoyant consumer demand we're adjusting other brand investments by focusing more of our resource on in store consumer excitement through effective promotion. This is an investment that we deduct from our sales line whilst some others in the industry include it as advertising and promotion investment. To illustrate this, our so called above the line expenditure is ahead by 90 basis points compared to the first half of last year. Equally in these same conditions, our brand portfolio is well positioned to respond to any down trading to lower price policies. We have always applied market segmentation models, but address the different functional and emotional positions in categories in a matrix that looks at the relevant consumer price points. As an example you can look to our smart shopper brands in laundry across the world, Suave in personal care in North America and Knorr, which offers from a simple [indiscernible] cube to prepared meals. In D&E markets we may well continue to drive consumption with emphasis on smaller pack sizes and investment in distribution, as opposed to advertising and promotion. The lower price point offerings tend to have lower gross margins, and compensating lower A&P investments, however, in margin and value creation terms they are broadly the same. Thus while the shape of the P&L and the balance between gross margin and A&P may be marginally different to our original plan for this year, we continue to make the appropriate investment in our brands to deliver the Path to Growth strategy.

Finally we are gaining structural benefits in tax and expect a BEIA tax rate of 30%-32% over the next few years. While this year, as last, we expect it to be at the lower end of this range. In respect to the phasing of EPS growth for the year, there are a number of elements, which lead to a weighting for the second half. These are firstly within operating margin the first half has been impacted by a short-term loss of profit contribution from the sales impact described earlier. In addition from the accounting impacts for the new Go to Market approach in our US foods business. In combination these had a negative impact on operating margins of about 90 basis points in the first half year. Secondly a relatively high A&P spend in the latter part of 2002 from the backend loaded innovation plan of that year. Thirdly the impact of dilution from disposals, especially Diversey Lever and Mazola, which is close to 3% for the first half year but much less in the second half. Thus in summary our innovation and market place activity plans for the year are intact. We remain responsive to the specific needs of the consumers in the individual markets and our savings plans, including a strong contribution from global procurement, are delivering ahead of plan. Taking in combination with the profit impact in the first half of short-term issues, that we do not expect to repeat in the second, and the weighting of EPS growth between the two halves of the year, has meant that we are able to maintain our earnings outlook for the year, not withstanding the lower than expected leading brand growth. Finally in looking at the comparability of EPS growth and other market matrix it needs to be remembered that both our targets and results continue to reflect the impact of pensions under FRS 17 accounting and the expensing of stock options, which account for the equivalent of some 6% of EPS growth.

Let me now turn to the broader picture of Path to Growth, our progress with its implementation and what the performance of the first half of 2003 means in the overall context of our strategy. We do not run our business to meet the requirements of quarterly reporting. Indeed, you should be worried if we did. Our task is to manage the reality of the consumer markets in which we operate. In Unilever we've always worked with a business model that moves us forward on the appropriate combination of value drivers in any given set of circumstances. For example if we look over the so-called core strategy period of 1985 to 1999 we see sustained progress on all dimensions as set out on Chart 5. During the core strategy period we firstly focus on the FMCG industry and then down to the more limited number of categories. We’ve been from over 55 in the early 1990’s to 13 by the end of core strategy period. We delivered value by driving all four levers of value creation, and grew EPS at 9% per annum over the period and increased our free cash flow to approaching €3b. However, whilst we did achieve our objective of top third TSR in 3 years during the 90s we did not achieve it consistently. When we looked at what was holding us back, it was clear that we were too complex. We needed to remove that complexity which would allow us to leverage out scale, which in turn would allow us to step up our top line growth performance, further enhance margins and capital efficiency and thereby step up our cash flow growth to achieve and sustain top third TSR. Hence part of the growth was created at the next stage in our strategic evolution, it retained the strong category focus that had come from the core strategy period, but brought with it a sharper focus on a limited number of brands occupying leading positions, thereby removing complexity and allowing us to leverage our scale in branding, innovation, supply chain overheads and in the utilization of capital. In pursuing this focus we were intent on building on our historic strength of deep roots across the world but increasingly exploiting the advantages of scale and scope where these added value. Because Path to Growth represents an evolution of our strategy and that it brings with it an integrated approach to how we wish to develop our business, that it remains as relevant and valid today as it did at the outset. It has a few simple principles, which are set out on Chart 6. Path to Growth has at its heart our desire to bring about an acceleration in the profitable and sustainable growth of our business. Unprofitable growth has always been easy for a company to pursue, so our strategy to looked to step up performance on all the levers of value creation. With respect of top line growth this was to be achieved firstly through active portfolio management and secondly by focusing on our leading brands. Portfolio and brand focus would enable us to better realize the scale advantages of our business, leading to improvements in two of the other levers of value creation, enhanced margins and improved capital efficiency. In combination these would drive a step up in through cash flow and an optimized whack we planned to deliver top third TSR. Whilst the latter has not yet been achieved, it is revealing to look at how we are progressing on each of these levers. Firstly capital efficiency and operating margin, which is shown in Chart 7, we made excellent progress on both these measures with a well-established culture of continuous improvement in efficiency, which has been further enhanced during the period of Path to Growth. Operating assets as a percentage of sales has improved by 840bps to 21%. 200 basis points better than the target we set. At the end of 2004 we expect this ratio to fall further as we continue to move to more outsourcing, gain the benefits of our global procurement program and complete the remaining factory closures. Operating margins have moved ahead by some 350 basis points reflecting the delivery of the savings from our restructuring and procurement programs ahead of plan. Part of these savings have been reinvested back into additional investment in our brands, which we have increased by some 160 basis points to date in line with our original plan of 200 basis points over the 5 years.

Turning to Chart 8 I show the drivers of operating margin improvement that get us to our 16% plus target. We're clear that we have the drivers to deliver the remaining operating margin to achieve our target of 16% plus and that we have the headroom to respond to changes in the business and competitive environment. For example, in 2003 alone we have created a further 120 basis points of headroom through the continuation of our global procurement program. We have continued to see benefits from the Best Foods integration program, both initiatives incidentally where we achieved our original savings targets well ahead of plan. The divisional structure has further improved our focus on gaining scale benefits, for example product logic, which many of you will have seen during the Chicago visit, where we moved to the next level of leveraging our scale, is rapidly gaining traction. Going forward we will clearly continue the benefit from the disproportionate growth of our higher margin Personal Care business, the benefits of ongoing restructuring, the costs of which we will include in our margin beyond Path to Growth, and thirdly, gaining further incremental benefits from the global procurement program, so further boosting margin momentum. Indeed it should not be forgotten that we have already enhanced the quality of our target margin delivery over the course of Path to Growth by expensing the cost of stock option schemes.

Let me now turn to how we've optimized our balance sheet structure with related benefits in tax and the cost of capital as shown on Chart 9. Firstly we've made a number of structural improvements since 1999, which have reduced our BEIA tax rate by 200 basis points to between 30% and 32%. Secondly strong cash flow combined with inflows from our disposal program has allowed us to reduce our debt from €26.5b at the end of 2000, to €16.1b at this half year. Well on the way to our target debt level of between €12b and €15b. This is the level of debt that gives us a competitive cost of capital, one that is a full 100 basis points below the level we had at the end of 1999. The Chart shows in current money the sources and uses of cash over the period of Path to Growth. Once we reach the target level we will ensure we retain an efficient balance sheet, and we will chose the appropriate mixture of tools to achieve this, including distribution by dividend or share buy back programs.

Let me now turn to the top line starting with improving the portfolio on Chart 10. We have substantially reshaped the portfolio having acquired powerful brands and exited nearly 100 businesses. This has added some 100 basis points to our operating margins and increased our momentum growth rate also by 100 basis points from 3% to 4%. In the 90s we achieved a 3.5%-4% underlying sales growth, and by adding the portfolio improvement alone, this takes us to 4.5%-5%. This combined with the exit from the tail of brands allowing us to focus all our resources behind the more powerful group of leading brands, gives us the confidence in achieving our 5%-6% target. Our leading brands now represent over 90% of the portfolio, and we have clear plans for them to get to 95% plus by the end of 2004. To date this year we have completed or announced disposals representing annualized sales of some €900m. Within the leading brand portfolio we still have some businesses that are not yet meeting our growth targets. I'd highlight three of these in particular, Frozen Foods, Household Care and Prestige. Combined these businesses, which represent some 10% of leading brand turnover, are holding back our overall growth rate by around 60 basis points. With these as we've demonstrated before with other businesses, they will need to play their full part in delivering Path to Growth or we will follow alternative approaches to achieving value.

So let me now turn to the progress with the leading brands starting with our overview on Chart 11. We've seen growth in aggregate for our leading brands in both 2001 and 2002 within the target range of 5%-6%. In 2003 we expect growth of some 4% with around 5% for the second half of the year. I'd now like to take the performance we've seen in the first half of this year and put it in the context of our growth target. Firstly Home and Personal Care on Chart 12, we continue to see sustained performance in our Personal Care business with growth of 7.6% in the first half of this year. This growth has been held back by our Prestige business, which declined by 8%, and depressed overall Personal Care growth by 100bps in the half year.

If I look at the Hair, Skin and Deo part of this part of this business, which represent well over 80% of the portfolio, growth in the first half has been 9.5% consistent with the nearly 9% per annum we've achieved over the past 4 years. We continue to see strong contributions from Dove, Sunsilk, Axe and Rexona, whilst in the first half we've also seen an important contribution from Lux, which has grown at over 10%. Prestige has suffered in difficult markets and under new leadership we are focusing on our strength in fragrances in both Europe and North America, with a view to returning to historical levels of growth and profitability.

In Home Care we continue to prioritize improving margins over growth. Let me turn to Chart 13 and explain this in a little more detail. In Household Care, which represents about 15% of Home Care leading brands, we're focusing on Cif and Domestos across the world. The selective development of other brands where we have country strength or potential. The business has not yet delivered a satisfactory performance in the first half of the year. We've a good innovation program going forward and we're looking for these initiatives to demonstrate our ability to sustain the higher rates of growth needed to achieve the Path to Growth objectives.

In Laundry, which represents around 85% of Home Care leading brands, whilst the top line has been growing between 1996 and 2000 of over 4%. The operating margins have been well below our piers and have not shown any progress in the last 6 years. Due to the fragmentation of portfolio, which was not allowing us to sufficiently leverage our scale of innovation and supply chain along with a limited number of smaller markets, which were destroying value. As part of Path to Growth, we established that this part of the business needed to make a step change in profitability, thereby "earning the right to grow". We're implementing a strategy which removes the complexity in the portfolio by focusing our resources behind six brand positions, exiting a number of smaller countries and adopting new business models designed to improve profitability. We have very clear targets as we move to the end of Path to Growth, the 500 basis points plus of operating margin and a reduction of 10% in our operating assets as a percentage of sales. We're making good progress with the implementation of the strategy as shown in Chart 14. We have improved operating margins by more than 250bps. Reduced operating assets as a percentage of sales by more than 5.5%, whilst at the same time continuing to see stable market share, and underlying sales growth of above 4%, in markets representing around 80% of the Laundry portfolio. On the Chart you can see how we've reduced factories, simplified specifications and enhanced focus in this business.

Let me now turn to Foods and again start with an overview of performance by our key business segments, as set out on Chart 15. In Foods we've seen a slow start to the year compared to the step-up in leading brand growth we had seen both in 2001 and 2002. Within this, Savory and Dressings, which represent some 35% of our Foods portfolio continues to perform well with retail leading brand growth of well over 4% in the first half year. Within this we've seen good growth in Knorr, fuelled by the roll out into new markets, and innovation in the core including meal kits, on the go products such as soupy snacks, pasta sauces and good for you soups. Secondly a strong performance from Bertolli and thirdly over 4% growth in Hellmann's as we expand the brand franchise and the exit from [indiscernible] in the US moves behind us.

Overall leading brand growth for the first half was, however, held back by Food Solutions. Food Solutions in a tough market is doing well and gaining share driven by a strong business model reinforced by innovations. Including the roll out of Soup Solutions across the world, a series of initiatives in Savory and extending Ben & Jerry and Slim Fast distribution in North America. Underlying sales growth in the first quarter was flat but in the second quarter showed an improvement with growth of 2%. We expect to see further progress as we move through the rest of the year, as the one-off impact in Out of Home markets move behind us. Tea showed a pick-up in growth towards its historical growth rate, with leading brand growth in the first half year of nearly 5%. We're continuing to benefit from the refocused brand portfolio in India and continue to build on our leading position in ready-to-drink, where we've seen double-digit growth in the first half of the year in Europe and Asia and growth of over 6% in North America. Spreads and Cooking Products have delivered sustained leading brand growth of above 4% in both 2001 and 2002. Whilst in 2003 we have seen a slower start to the year. Heart Health brands delivered high single digit growth partly offset by declines in the Family brand as we deal with lower butter prices and some aggressive competition in Germany from value brands. Competitive issues are being addressed and combined with a strong innovation plan in both Family brands as we expand into non-dairy based cream alternatives and the extension of our cholesterol reduction technology into other categories, gives us the confidence that we can sustain good growth in this category.

Health & Wellness, which is principally Slim Fast, we discussed earlier. We expect to see the progressive benefits of our action plans which, involves improved timing and execution of promotional plans, active PR and advertising efforts to counter competition, and a range of innovations which are just going to market. Ice Cream leading brands for the first half-year grew at 4%; within this D&E markets continue to grow at over 5%. In North America weak Out of Home Channels, particularly impacted Ben & Jerry's. But this was more than offset by another good performance from [indiscernible] not withstanding tougher prior year comparatives. We continue to lead the American ice cream market and have a business with trading margins in the mid teens providing the platform for further profitable growth into the future. In Europe we had a good start to the season. However it is too early to read the success of our extensive innovation program. In Frozen we are rolling out innovations in quality convenience meals, kids nutrition products and snacks. In addition our move of Knorr brand into the category continues on track. We are looking for these initiatives to demonstrate our ability to sustain the higher rates of growth needed to achieve the Path to Growth objectives.

Let me turn to chart 16 and summarize our progress on raising the rates of top line growth. As we progress through the Path to Growth, we are moving all parts of the portfolio up to a sustainable level of profitable growth. In the first half of this year, we have had some parts of the portfolio, where we still have more work to do, namely Laundry, Household Care, Frozen Foods and Prestige. Whilst in Slim Fast and Spreads Family Brands we have seen a pause in their growth performance. In the case of Slim Fast, Spreads Family Brands and Laundry, we are confident that this will be the case. Whilst as I mentioned earlier Prestige, Household Care and Frozen and whilst I'll not now undertake the normal cooks turn of the regions, the retail sections are available here or on the website. I would like to pull out a couple of features of our performance in the first half year as set out on chart 17. Firstly our D&E businesses continue to deliver strong growth across Asia, Latin America and Africa, Middle East and Turkey we have seen the growth of the leading brands in aggregate of nearly 10%. Secondly in Europe, we saw an improving trend through the first half year with growth in the second quarter of approaching 4%, and for the first half year of nearly 2%, which partly reflects the so called Easter bounce, but also an underlying improving trend. Thirdly, in North America we've seen the combined impact of the trade de-stocking, Slim Fast declines and challenging market conditions in Prestige and Food Service, which masks an improving trend in our Unilever Best Foods business.

Let me now try and draw all of this together with a summary on chart 18. I have talked about the progress we have made against each of the levers of value creation. This has enabled us to deliver and indeed in 2002 over-deliver our target of low double-digit EPS [BEIA] growth. Progress also translates into economic value through our cash flows and the cost of capital that's used to discount them. As we said at pre-close, if we look back over the last ten years, growth and enterprise value has lagged the growth in free cash flow. Indeed, based on our current share price, our valuation implies no free cash flow growth in real terms. This is not what we planned nor is it what our track record suggests. If we look at our track record, using EPS growth as a good surrogate for long-term cash generation, it shows that over the first 70 years of our existence EPS grew by an average of nearly 8% and through the 1990's by 9% per year. In terms of planning then, by the end of Path to Growth, we will have stepped up Unilever's overall performance on all the levers of value creation, moving forward our over-arching ambition to achieve consistent top third TSR within our peer group we'll continue to be the center stage. This will be achieved by continuing to focus on what we do best. Pull the right combination of value levers in any given situation to optimize economic returns.

Before we move to q and a, let me now say a few words about the pre-close and communication with the market. Our future of approach is set out on chart 19. Pre-close was introduced in December 2000 to improve our communication with the market. It recognized that as we went through a period of radical change from Path to Growth and divestment integration, there would be volatility in absolute top line growth and in EPS growth, which would be difficult for the market to follow. That period is now coming to an end, which means we should review our current approach. We do not see the quarterly results reporting process as being a burden on longer-term development of strategy, but it does mean that each time one dialogues with the market, it must be done in a holistic way and be put in the right context. The timing and process for pre-close do not adequately allow for that. In addition, from our analysis we believe that our current pre-close process has now started to add to volatility and gives too much focus on the very short term. This is not in the best interests of the majority of our investors, which has been confirmed by a broad range of them. We therefore intend to change to a process that provides an annual outlook at the time of our full year results and refreshes it as appropriate through the year with each quarter's results. This will replace the current pre-close updates with immediate effect. Rest assured that there will be no reduction in the quality or clarity of disclosure or our commitment to a full and open dialogue with the market. We believe that transparency and visibility in reporting enables the market to come to its decision on both short and long term views and is something to which we are wholeheartedly committed.

With that, and in the interest of dialogue let me now turn to q and a, for which Howard Green will join me.

Thank you very much Mr. Markham. We will now call 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 the handset whilst asking your question. Should you wish to cancel your question at any time, please press '2'. If you need to speak to an operator, please '0'.

Our first question today is from John McMillan from Prudential. Please go ahead, sir.

Hello, Rudy.

Hello, John. Good to hear you.

Let me just say at the beginning, I am for one I don't know if you surveyed all your holdings and so forth, but I guess I am a little bit disappointed with the end of the pre-close calls. I know US companies that I follow don't do it and maybe I liked it because it was not in the middle of the night with the calls. Maybe I like the pre-close calls better than the ones in the middle of the night.

But I just feel like it just puts more information out there and I just guess this is more than a comment than a question. I am sorry to see it end. I do feel it puts more things out there and gave us a middle of the quarter view of what you were thinking, but that's more comment than anything else.

In terms of questions, the 5% top line sales goal of leading brands in the second half. I know you are not going to break it out Food and HPC, but can you give us an idea of what you are expecting from each of those areas in the second half and also what you are expecting in North America? Because that's been the primary area, a weaker performance in the first half was mostly tied to over here.

Okay, John. I respect your comments obviously on pre-close. We got a variety of views but I would have to say that the overwhelming view that we took from outside the business was that we would be better off focusing even more attention on our quarterly announcement and the quality of the outlook that we give at the beginning of the year, and that's what we have moved to. I hope we can continue to provide you with the information, which you and others, both analysts and shareholders require in order to form good judgments. So judge us on that as we go forward, okay?

On the point of the second half leading brand growth for the target, that is clearly implicit in some 4% for the full year. I think that in the analysis that I gave I indicated the main areas of shortfall as we have been through the first half-year. The shortfall in Slim Fast, the wider based sales out shortfall in our business in North America and the slowness in Prestige and Fruit Solutions, although the latter as I indicated, is picking up a little bit as we go forward, or as we go through the end of the quarter.

If I look to the confidence level in the portfolio and in the business going into the second half year and without repeating too much of what I have already said, I point you to the reality that our HPC program for innovation continues beyond the first half year into the second half year also in the US. So you will see innovations in Suave, you will see innovations in Dove coming in, in the second half year. You will see further innovations on the Food side in North America and in Europe too. There are significant innovations in Spreads where we have been, as I indicated in our Family Brand positioning, a little weaker than we had expected in the first half of the year. We expect continued growth basically in those parts that are going well.

Broadly our growth in Latin America has gone well in the first half in the year as it has in Africa and we would expect a continuing performance in those markets as they adapt to the changing economics of their environments, now the devaluation seems to be going through the market. In terms of what changes, because I guess John your question is what changes in the second half of the year.

North America has to change; you did down 2 in North America in the first half.

Absolutely. So let's look at that in a little bit more detail. Firstly Slim Fast. Slim Fast was 70 basis points of our growth off in the first half year and there are three things that we are doing, because we have to reverse a sales decline. It is as straightforward as that and gets it back to where we were a year ago, which was looking at a brand that has delivered over a three-year period, double-digit growth. We have had three issues basically. We have had some trade management issues which have been partly engendered by the success of the category and within it the success of the brand leader which is Slim Fast. We think we have fixed those. We will see that as we go through Q3 because it is in Q3 that the big promotional activity in the weight management area takes place in the US. The second is we need to broaden the range of Slim Fast products to make it more attractive to a wider group of consumers. We have a number of innovation activities going into the market including -- they are going in as it were as I speak, including Slim Fast pastas, including soups, a ready to drink Soya variant and some new varieties of the shakes, the dairy based shakes particularly and also the meal bars. The theme behind it John, is to broaden the appeal in terms of occasion and in terms of taste of the Slim Fast range, because we are utterly committed to the technology of weight reduction which the Slim Fast diet embraces, which is the low calorie diet. So that is the second element and you will see that going in progressively into the market. I think actually if you look around you will find Slim Fast ice cream, which is another one already on shelf, or hopefully in the freezer. The third area of competition which is more subtle and which will take more time to deal with is the competitive attraction of alternative weight loss methods. The most visible at the moment, I guess, would be the Atkins diet which has attracted quite a lot of news interest and certainly looking at the people who publicly embrace it a little bit of celebrity interest. That is just to remind you with lesser products or a range of products and more a methodology, which is essentially a high fat low carbohydrate diet. Now, in some cases you can see some fairly immediate appeals by it, because it would suggest that when you are eating meat and cheese and maybe having your hamburger, eating a little less fruit and a little less vegetables, or all the things you don't immediately like and everything will be fine. Well the diet, like all diets, have to be assessed in terms in their consumer appeal ultimately. Not only by the way they taste and look and appeal, but also by their efficacy. Do they deliver what they are being taken for? Is it sustainable? Are the impacts of the dietary management sustainable? Thirdly, are there no side effects? Now we have given and provided quite a lot of evidence on all of these three aspects for Slim Fast and we are very comfortable with that and we need to make sure that the awareness of that grows. So we need to inform our consumers clearly but also opinion formers, nutritionists, health advisors that they are aware of the relative merits and the clinical and medical evidence underpinning the Slim Fast diet. But that is going to take time and we have in our plans the investment necessary to do that and we will see as we go through the second half year, how that is delivered.

That's Slim Fast. That's the innovation. With regard to the de-stocking, which was the biggest element of the three things that I commented on, which particularly impacted the US, we noted the de-stocking impact quite early. We have commented on it and we have put a lot of work in to satisfying ourselves that it was really happening and at least it was happening to us. It may be happening to others as well, but we are not able directly to see that and they may have other methods of dealing with it. But specifically for us, if we look at our market share in HPC in the US, we find very little change in aggregate across the range during the first half of this year. We also note that the amount of consumer markets in Home and Personal Care have slowed down a little bit this year. That's against the expectation we had at the beginning of the year and on which we based our plan. We have noted that our innovations have been successful, Axe and Dove particularly, but also our fabric conditioners and our repositioning of innovations in all.

Though we are satisfied with our innovation program, we have been hit by something of a decline in consumer value uptake and that hurt some of our brands as well, but in aggregate we have been impacted by the decline in trade inventories. We believe from the data we have looked at. We have seen now roughly one and a half weeks of stock come out of the trade, as it were. We believe that this is now largely behind us. Inevitably in any trade de-stocking exercise there comes a limit beyond which you cannot possibly go without introducing system changes or process changes, which we have neither been asked to do, or to our knowledge are any of our retail partners investing in. So we believe we are coming to the bottom of it and that of course means that the growth momentum that we have seen in the categories in which we operate in the second half of the year, will not only resume, but will be reflected in our own sale outs to the trade. If I add to that the innovation program that we have remains comfortable with the contribution of growth from North America in the second half of the year as of course with Europe and the three overseas regions and D&E markets that I have commented on.

Do you think North America might come close to the overall 5% target that you are shooting for in the second half?

John, we clearly as you see from the first half had a number of things affecting various parts of our business in the US. I have commented on Prestige and I am uncertain how Prestige will recover frankly, in the second half of the year. The season starts in two months' time so that is very difficult to predict. I think the basic HPC business as I said we will utilize and we will see some improvements selectively through the innovations that we have.

In the Food business, we have of course our results for the first half-year have been impacted by the change in our Go-to-Market process that we have talked about before. That was a pre-planned change. We knew it was going to happen and I guess as we go through the rest of the year, we will have to see how that will quite pan out in the full year in giving us the numbers that we are looking for.

Okay. I will let some others try. Thanks.

Okay. Thanks very much, John.

Thank you. Our next question comes from Carl Kawasha (ph) of Capital Research. Please go ahead sir.

Hi, just to provide the other side of it, I'm happy that you're doing away with the pre-close guidance.

Thanks Carl, good afternoon, nice to talk to you.

Thank you. I was wondering if you could talk a little bit more about the outlook for your business in India. You know the general consumer environment in India has seen a slow down and it's gone through inflation in economy to almost a single digit interest rate economy. I was wondering if you could comment a little bit about that business?

Yes, sure. Firstly our business, as you know has been in India also through a significant period of portfolio reshaping. When we talk about the Unilever business in total then we talk about a tail, then I should also add that we have of course a significant tail business in India. Probably broader in India than in many other parts of the Unilever world, because for many years part of retaining our independence in India, the shareholder base that we had, we had to agree to investment in things that supported the earnings of the foreign exchange. So we got involved in the past in chemicals, in fertilizers, in agricultural products, in leather, in shoes, an enormous variety of things. Over the last couple of years you've seen a progressive move to dispose of these businesses and to focus the business increasingly on our core categories. Then, of course, as we've moved into the leading brand strategy, into the leading brand position.

So that is the strategy that our business in Hindustan Lever has been following. Disposing of the tail, or managing its way out of the tail and focusing just as every other part of our business has been, on leading brands, and on the growth of our leadings brands and margin improvements and so on.

Now the figures that I have of course for the whole of the business include our performance in India. Given that HLL is a Publicly quoted company and has not as yet I think reported its results for the second quarter, I'm rather constrained about talking about the specifics of their performance in the second quarter or the first half, because I think they are due report, I think it's later this week. So I think Carl, if you'll forgive me, I'll delay a conversation with you on the progress in India just until they have had the opportunity to talk about their performance specifically in the first half of this year.

Sure. Just a short-term type question if I may. Can you sort of characterize the way that summer is shaping up for your Ice Cream and Drinks businesses in Europe? People in the UK tell me that the weather has been wonderful, but I hear different things, depending on who you speak to.

Certainly I'm told that the weather in the north of Finland has been a bit damp for this time of year. So I got anecdotes from someone who went there on holiday. But the broad picture Carl is that June we've had broad based good weather throughout Europe and our Ice Cream business has done well in that month. In fact that also reflects year-on-year progress because we had a good month in June, same period last year. With sort of a high pressure area over the center of Europe and that sort of stretched to the UK, to Sweden, to northern Germany and right down to the west and the south. So June was very much like that. Our Ice Cream business has done well in June and in fact our growth was a little bit ahead of what we were expecting when we did our pre-close in Ice Cream. Our Ready-to-Drink beverage businesses have done the same. So the first half of the summer if you like, up until the end of June has gone on quite well for us.

All right, I'll pray for global warming.

Yes. But I would just note Carl that also for global cooling we have an excellent range of Soup and Snack products that warm you up, as it were, to enable you to in a fresh and vigorous way to cope with the rigors of cold and wet weather.

Congratulations on the good results Rudy.

Thank you very much Carl.

Thank you. Our next question is from Maria Moratori (ph) of Ohio Teachers (ph). Please go ahead.

Good afternoon. My question is about the brand reduction strategy. I wonder now in terms of number of brands how far along are you in your brand reduction strategy? Also going forward should we expect proceeds from the brand reduction going forward? Are you going to actually sell a lot of your brands going forward or do you think at this stage you're going to be more closing down existing brands?

First the facts. We are about 630-635 brands we've got at the moment, if I sort of count them all up, which is well on the way to the 400 that we expect to exit next year with. In terms of what happens to that 235 brands, we'll continue to do as we've done in the past, which is we will seek the most value creating way of getting out of those brands. That could be by selling them and indeed as you've seen, we've sold something like 100 businesses since we started Path to Growth. I am clear that there may be others as we go further forward. Secondly we will milk them, as it were, to death in our portfolio, if that seems the most appropriate value creating way of doing it. But I think you should draw confidence that our brand count continues to reduce steadily. We saw a higher level of attrition of volume or value of the tail in the course of the first half-year, it declined by 7.7%. It represents now less than 10% of our overall business and certainly by the end of next year it will represent less than 5%. So you can see that in a series of routes that we are reducing basically our tail and those brands will then be consigned to history and the archives.

Will any proceeds that you receive continue to go to debt reduction?

I'm sorry can you just repeat that?

Sure, will any proceeds that you do receive, if you decide that's the way to go with any given brand, will those proceeds continue to go to debt reduction mostly?

Oh yes. Debt reduction for us remains the number one use for our cash fund. We've a debt at the moment of €16b, we're heading for €12b to €15b, that sort of order of magnitude. So I'm quite clear and comfortable that we'll get there but we've got a way to go before we're there.

I don't know Howard do you just want to add a comment or two or?

Just in connection with the disposal program. One of the things that we have been active in is in selling businesses where we get the appropriate prices. We've sold 99 businesses, which includes both brands type disposals and also brands with tangible assets and have raised €6.8b through that process in terms of those disposal proceeds. So just to reiterate Rudy's point that we choose the most appropriate route to go and get on an execute it.

Okay, great. Thank you.

Thank you. Our final question is a follow-up from Mr. John McMillan of Prudential. Please go ahead sir.

Rudy you talk about Slim Fast. Is Slim Fast now making product labeled products for Wal-Mart?

No. No that's not been the issue. The issue with Wal-Mart amongst others has been the positioning of their own retailer brand in price terms, in promotional spend terms, in performance terms in relation to our brand as the leader of the category. That is the issue that we have faced as we've been through the discussions on promotional planning at the beginning of this year, which we commented on I think. As we sort of prepare ourselves for the second half promotional planning period, which is in August/September, I think John.

Just also on US Food. Are your Ice Cream market shares, a lot of market share numbers came up today and certainly your Ice Cream market share improved, though if this [indiscernible] Nestle combination is going to hurt yet, it hasn't yet. Even though it's been a number of days. But if you look at some of the other food businesses, I don't get too upset about monthly trends. But as you're counting on kind of a big second half rebound. The pasta source was very weak; the mayonnaise number was very weak. The key number was extraordinarily weak. I know you've had a management change under John Rice (ph) in North American Food, but is that business - I know you don't want to give specific numbers, but is that business kind of on track to do your second half numbers?

Well let me make a couple of general remarks on our US Foods business and then maybe Howard may want to comment a bit on individual share positions, because some of the points you made I don't immediately recognize. Let's take the business first. We have indeed made a top management change as the business has moved to its next phase of development. John Rice has taken over from [inaudible] to propel the business now forward into the next stage. This year the major undertaking of our US Foods business is the Go to Market change. I know John you're well familiar with the Go to Market principals and how other companies have previously adopted it. We were late, all of that stuff. But we went live 1 April, that had a clear impact on our growth number in the first half year and also our margin number. Planned and expected and we look to see the recovery of that as we get more efficient promotional planning processes going forward. So in principle our business there is in good shape. You'll see by the way one further management change that I think was announced recently. That was that we have a senior appointment, following the departure of Matt Shattuck (ph) who was the Head of Marketing at our business in North American Foods. We've now succeeded in attracting Michael Polk (ph) a former crafts executive to join our business as a top executive. He will be joining us fairly soon. So there have been a number of management changes designed to improve the - or accelerate as it were the roll out of growth in the business and put some muscle behind the brand development programs and growth activities and opportunities that we have in the area of the Spreads range in the area of our pasta sauces, our beverage brands and so on. Maybe I'll just ask Howard to address specifically the market share positions and changes and see that we're both aligned on where these are.

Hi John.

Hi Howard.

I think one of the issues is that we are dealing with Nielson (ph) data, I don't know whether your?

That's what I got, Nielson, it came out this morning.

I'm picking up information both on the 12 weeks ended the second half of June and the 52 weeks ended for that same period.

Actually my numbers go to the 12 July.

Okay you have some information in front of you then that I don't have. But certainly on the information that we have had and that we have been tracking for many quarters now, our Unilever Best Foods North America business has been holding or slightly gaining share in each successive reporting period that we've been through. In terms of areas like pasta sauces, in the spoonables area, in terms of Skippy peanut butter, in terms of Lipton in Savory, in terms of Knorr. In tea we have been consistently holding or gaining small amounts of share. One area where we're showing share losses on the information that I have available has been in the area of Spreads. That is for a particular reason, because of low butter prices. There has been some obviously some pricing issues there that we've been addressing, but we're certainly showing some share declines on that.

I don't want to make a big deal about 4 week numbers, but I think you'll see that?

Well I'd be quite happy John if you email them to me I'll make sure that we have a discussion with the guys and girls in our Unilever Best Foods North America business and would certainly get back to you. There is nothing that we see or hear from the business that gives us any concern about the overall business though. In terms of Ice Cream then we are indeed showing good gains in market share relative to the competition.

The HPC numbers in fairness [inaudible] are fine are good.

That would be confirmed by the numbers that we have available as well.

The only other issue I would say is that, we've already talked about it, is Slim Fast has obviously lost some 3%-4% of share.

So certainly on the way that we've been tracking it, we use 12-week shares as being the best indicator because that takes us over sales cycles and gives us a better feel for the rhythm of the market. There is some danger with 4-week figures, because it might come up against a particular timing of promotion in the prior year, or particular activities that are being run by competition. So we tend not to use 4-week figures, we concentrate on the 12 weeks and look for the validation through the 52-week share.

I'll email you these numbers if you email me your Wal-Mart numbers. Okay, have a good day.

Okay John just to actually give you some other feel for that, is just to say that in markets that we generally see in North America growing at around about 1%, our Unilever Best Foods North America business has grown underlying sales growth of 2.5% in the year to June. I think that that's a good indicator of the overall business health.

Great.

That figure by the way John is after allowing for the impact of the Go to Market changes that we've had. So we're actually pretty comfortable with the performance to date of our business in this year in Foods North America. We have some recovery to do because remember the years before; we've perhaps not performed as strongly as we should, but we're seeing it coming back now.

Okay, thank you.

Okay John. Thanks very much.

With that then ladies and gentlemen thank you very much for your attention and interesting questions. Good-bye.

Thank you very much ladies and gentlemen. This Conference has been recorded. Details of the replay number and access codes can be found on the Unilever website. An audio archive web cast will also be available on Unilever's website at www.unilever.com.

Thank you very much for your participation today, you may now disconnect.