聯合利華 (UL) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Unilever's 2005 first quarter results conference call. This conference will begin with a presentation by Mr. John Rothenberg, Senior Vice President of Investor Relations, followed by a question and answer session. [OPERATOR INSTRUCTIONS]. We will now hand you over to Mr. Rothenberg.

Good morning everybody, and welcome to this conference call on Unilever's first quarter results. You will already have seen our results announcement released earlier today. In the next 20 minutes or so I want to get behind these numbers to give you a sense of how we feel about them.

But some of the headline numbers appear better than they really are. We see real evidence of a strengthening of our competitive position, compared with 6 months ago, and this is starting to feed through into an improvement in our underlying business performance. I will also give a brief update on the other issues that we announced in February, in particular, the implementation of the new organization.

Before doing so, there are a couple of housekeeping points that I need to cover off. As always, I draw your attention to the usual disclaimer relating to forward looking statements, which is included in Chart 1 and will be posted with the text of this presentation on Unilever's website.

I would also like to highlight a few changes that we've made to the way that we present our results, as summarized on Chart 2. There are 4 key differences that you should be familiar with, first, our adoption of IFRS. As we have said before, the impact of IFRS on Unilever's results is limited because we had already been publishing our P&L before amortization and had adopted tighter accounting standards on pensions and share options.

The most significant change is the reclassifying of certain promotional costs as deductions from turnover. Although not strictly part of IFRS, we have chosen to align with the U.S. GAAP definition of revenue. This change has the effect of reducing our 2004 reported turnover by 2.6% and increasing operating margin by 40 basis points. It has no impact on operating profit. A full restatement of our 2004 results, together with supporting Q&A, was posted on Unilever's website in April.

The second change is that business restructuring, including gains or losses on disposals, will be treated as normal business, and as such, included in operating margin.

Thirdly, we have moved to a segmental reporting of our business that reflects our new organization. The key changes here is that we report under three regional groupings, Europe, the Americas, and Asia/Africa. Our category reporting remains largely unchanged.

Last, but not least, we are simplifying the presentation of our income statement by ending our practice of publishing numbers at constant exchange rates, in addition to the full set of current numbers required under IFRS. We will, of course, continue to comment on operational performance at constant rates, as this is how we manage our business and is the best way of assessing our underlying results.

So, with that out of the way, I would now like to turn to the Q1 results, starting on Chart 3 with an overview of the trading environment. You will recall that in February we said that our 2005 plans did not assume any significant improvement in market conditions compared with 2004. By and large, this remains the case.

That said, the environment differs considerably between regions and between categories. In Western Europe, market conditions remain weak, with continued stiff price competition both between manufacturers and within the retail industry.

This is especially so in Home and Personal Care. We estimate that the European Personal Care market grew by less than 2% in Q1 while the Homecare market declined by between 1% and 2%.

European Foods markets are growing modestly, at around 1%. In North America, Foods markets picked up slightly in the quarter, with the notable exception of the weight management category, which is still contracting rapidly. HPC markets continued the improving trends seen in the closing months of 2004, with a Q1 growth rate of between 2% and 3%.

Across D&E markets, the picture is better. Consumer demand in Latin America is, if anything, even stronger than we saw in 2004. Elsewhere in Asia, Africa and Central and Eastern Europe, growing economies continue to translate into healthy market growth rates for our categories. Nevertheless, the competitive intensity in D&E markets remains high across all price points.

Turning to costs, we see a mixture of good and bad news. Agricultural commodities have indeed come off the peak price levels that we saw towards the middle of last year. In contrast, import costs that are heavily influenced by the mineral oil price, such as transport, chemicals and packaging, remain high.

The cost pressure on HPC categories is being felt across the industry. We have seen some selective price increases in the U.S., in Latin America and in parts of Asia. However, low consumer price inflation and fierce competition leave us cautious as to the prospects of significant price increases during 2005.

Against this background, I will turn to our Q1 sales performance on Chart 4. Our underlying sales growth in the quarter was 6%. However, we benefited from 5 extra days in the quarter compared with 2004, and an earlier Easter. We estimate these calendar effects to have a positive impact of around 4% on sales in the quarter at the total Company level, with the greatest impact in Europe and the least in Asia/Africa.

This represents further progress towards restoring our growth momentum, building on the improvement in the previous quarter. Even so, our growth still lags our markets that we estimate to be growing at close to 3%.

Year-on-year, our aggregate market shares are still down, reflecting share loss that we incurred during 2004. Over recent months, the picture is somewhat better, with our aggregate shares in both Foods and HPC more or less flat compared with Q4 2004.

While there are some areas where our share performance remains soft, there are signs of a turnaround in a number of important markets. In our top 20 geographies in both Foods and HPC, we have gained share in more places than we have lost. Thus we are still some way from having reversed our share losses, but Q1 does represent an improvement compared to our share performance in previous quarters.

At this point, rather than going into a region by region and category by category analysis of our Q1 sales performance, I would like to refer back to the 2005 priorities that we outlined in February. The first of these was to regain momentum in Europe. Our European business grew by just over 3% in Q1, which after allowing for the calendar effect, represents a like-for-like decline of around 2%. This is better than the 3% underlying decline we saw throughout 2004 but still a long way from the level of competitive performance that we require.

Turning to our European Foods business in Chart 5, here we saw an encouraging start to the year with share gain in most categories compared with Exit 2004 and positive sales and volume growth, even after allowing for the extra days. This reflects a better sales performance in the U.K., the Netherlands, Italy and Germany, although France remained weak.

Of particular note was the contribution from spreads and cooking products and from ice cream, which between them account for nearly 1/3 of our European Foods portfolio. Both delivered strong, innovation-led growth in the quarter. In ice cream, Magnum Five Senses has been well received by the trade across both out-of-home and in-home sectors, and we continued to develop our ranges in the value segment across Europe.

We have already spoken on several occasions of the success of our pro.activ cholesterol lowering products that now have sales of around €300m across Europe. However, our progress in spreads is not restricted to pro.activ. We have also seen good growth in the core of the Flora/Becel brand, while steps we are taking to strengthen our family brands, such as Rama and Blue Band, by communicating the nutritional benefits of these products, are also having a positive impact.

This is augmented by the steady progress being made with dairy cream alternatives, that were launched under the Family brands during 2004. Taken together, these initiatives have resulted in strong growth in the Spreads category across Europe in Q1.

Turning to Chart 6, our performance in European HPC has been less good. As mentioned earlier, this is partly due to weak market growth. However, our share performance was also soft, primarily due to a poor first quarter performance in the U.K. Outside the U.K., our market shares in both Home and Personal Care were generally stable.

We had a significant number of major innovations entering the market towards the end of Q1, and our innovation program remains strong going forward. In Personal Care, these include the new Sunsilk styling range in Hair, Dove Silk Dry in Deodorants and Lux Glowing Touch body wash in Skin. We also have important activities in Laundry, including Persil with the Essence of Comfort and Surf Tropical, both in the U.K.

In addition to new product introductions, we are also putting more weight behind successful campaigns such as Dirt is Good in fabric cleaning, and the Dove Campaign for Real Beauty. In aggregate, this represents a significant program of activities, designed to restore momentum in our European HPC business, and it will be appropriately supported with the investment in A&P.

Our other key priorities for 2005 are about driving harder and faster where we can build on our strengths. One of these is our global Personal Care business as outlined in Chart 7.

Our Personal Care business delivered growth of nearly 9% in Q1. Even after allowing for the extra trading days, this represents our strongest Personal Care growth rate for six quarters. This was in spite of the weak markets and share performance in Europe, and the continuing challenge we face in Japan.

Within this, we saw good progress across a wide range of brands and categories. Deodorants continued to deliver consistent growth driven by Axe, Rexona and Dove. Skin also performed well, with the notable contributions from our Personal Wash businesses in North America and Asia through Dove, Lux and Lifebuoy.

Prestige built on the momentum established in the second half, thanks to the success of Eternity Moment, and other innovations such as Obsession Night and CK Summer. We also saw stronger growth in our Hair business. In a fiercely competitive category, we have seen good growth in every region of the world, and across both developed and developing markets. This growth is due to sustained innovation behind Sunsilk and Dove, as well as regional brands such as Clear in Asia and Andrelon in the Netherlands.

We are also encouraged by the recovery of Suave in the US to a value share of just over 10% in Q1, firmly securing its position as the most purchased shampoo brand in the US market.

In Japan, after our initial successes with the re-launch of Lux Super Rich, the competition has fought back strongly and chipped away at the share gains that we made in late 2004. We are responding with new products and new communication in Q2 and we have a pipeline of innovation designed to maintain momentum through the second half of 2005 and beyond.

Also in Japan, we have renovated our Dove Hair range. The new products appeared on shelf in March and April, and are being supported with a substantial marketing investment.

Turning to Chart 8, another area of strength is our D&E businesses. In absolute terms, the underlying sales growth in our D&E businesses in Q1 was around €300m. Even after allowing for calendar effects, this equates to like-for-like growth of over 7%, a significant improvement over 2004, and back to the kind of growth rate that we have historically enjoyed.

Furthermore, the growth is broad based across Asia, Africa, Latin America and Central and Eastern Europe. Both HPC and Foods contributed to D&E Growth, with the latter being driven by innovations behind brands such as Knorr, Hellman's and Lipton.

Within the quarter, we have seen a return to growth in India, with much better sales performance in both Laundry and Hair. We also enjoyed good growth in India in Skin and Oral, with brands such as Lifebuoy and Close-Up, while the work we have done to strengthen our Tea business has been rewarded with the Brooke Bond brand gaining share for the fifth consecutive quarter.

The final area of focus that I would like mention is Vitality on Chart 9. Our Vitality mission is increasingly driving the way that we are developing our business. It is a mission that is not limited to particular brands or categories. It targets consumer needs that are relevant across our portfolio.

Let me give you three recent examples. In the Netherlands and Belgium we have launched Knorr Vie, which are smoothie style drinks made from concentrated fruit and vegetable juices and purees that provide at least half of the recommended daily intake of fruit and vegetables in a single shot.

For those of us that struggle to live up to our good intentions for a balanced diet, the consumer benefits are obvious. They are good for you, taste great, and can also be made readily available in cabinets and vending machines in convenient outlets and cafeterias.

Our Vitality mission is also clearly evidenced in a number of our recent launches under the Hellman's brand, providing consumers with healthier dressings without compromising on taste.

We are rolling out 'No Cholesterol' mayonnaise across Latin America, after its successful introduction into Chile, allowing consumers who had previously restricted their consumption, through health concerns, to enjoy Hellman's mayonnaise.

We drew new consumers into the brand in 2004 in the UK through the highly successful launch of Extra Light, which has only 6% fat, the lowest fat mayonnaise available in the country.

In the U.S., 'Hellman's With Canola' has just been introduced. This product, which contains canola oil that is high in monounsaturates and essential omega fatty acids, is targeted at consumers who are motivated by the desire for a balanced diet.

These innovations contributed to another quarter of solid growth for the Hellman's brand. Vitality is also driving growth in HPC. For example, our sponsorship of hygiene education programs in countries like India, helping families to understand the importance of washing hands, is an important factor in the excellent growth of Lifebuoy anti-bacterial soap.

Before leaving Vitality, I should mention Slim.Fast. Weight management is very much a Vitality opportunity and one that we believe continues to offer long term growth potential. However, the fact remains that we see little sign yet of a recovery of the weight management category in the US.

Thus while Slim.Fast market share is back over 30%, sales remain sharply down in the quarter. We continue to innovate in order to attract consumers back to the category - most recently with high protein shakes and bars that help consumers control their calorie intake by taking the edge off their appetite. However, we are not counting on an early return to growth in the category.

Turning now to the operating margin on chart 10, operating margin is 80 basis points ahead of last year, at 15.3%. This includes one-off disposal gains of €73m in the quarter and substantially lower gross restructuring costs compared with the previous year.

Looking at the drivers of operating margin, overall price growth was zero in the quarter, with price declines in HPC offset by modest increases in Food. As mentioned earlier, input cost inflation remains a significant factor, with the greater impact falling on the HPC business that is more exposed to material costs influenced by the elevated mineral oil price.

We saw an important contribution from our savings programs in the quarter. We see a slightly lower contribution from supply chain costs, but savings are starting to flow through from our 'One Unilever' simplification program. In aggregate, the benefits of our savings and an improved mix broadly offset the increased input costs in the quarter.

Finally, our marketing investment, including A&P, was up in the quarter. In Chart 11, I have summarized how our operating performance translated into the key financials for the quarter.

Our earnings per share at current exchange rates rose by 25%. This included a contribution for one-off benefits in tax, equivalent to an EPS increase of around 8%.

The tax rate in the quarter was 23%, thanks to these one-off credits. Given the low rate in Q1, we expect a full year rate somewhat below our longer-term guidance of 30%.

Our net debt at the end of the quarter was €10.1bn. This is €1.1bn below the level at the start of the year. €1.4bn of this reduction relates to the conversion of the 5 eurocent preference shares, which on an IFRS basis were included in the opening balance sheet. This was offset by a €0.5bn increase due to currency movements and also reflects an outlay of €0.2bn on the purchase of the company's shares.

Net cash flow from operating activities in the quarter was €0.5bn, slightly below the same period last year due to a higher seasonal outflow from working capital, which was partly affected by the timing of the quarterly calendar close.

That concludes my run-through of the results. Turning to chart 12, I would now like to briefly update you on two other issues that we discussed in February, starting with our new organization.

The new Executive Team formally took over the running of the business from the beginning of April. In the intervening period, they have continued to ensure the smooth running of the business in their previous roles, while starting to build their new teams, and putting in place the necessary operating framework to ensure that they hit the ground running from the beginning of the second quarter.

The pace of change has been high, with well over 100 senior appointments announced in the past three months. Inevitably, the simpler top structure means that we have been able to design a leaner organization below executive level. As a first step, we have identified opportunities to reduce our senior management headcount by nearly 15%.

While we continue to drive the organizational changes and new ways of working as fast as possible through the business, we are doing so in a way that ensures that there is no compromise of the businesses' ability to deliver our 2005 plan.

We also announced in February that we would be conducting a review of Unilever's corporate structure. The team that will conduct this review has now been appointed and their remit agreed by the Board.

The study will be led by our non-executive chairman, Antony Burgmans, who will be joined by two other non-executive directors, Mr. Jeroen van der Veer and Lord Simon of Highbury. The team will be supported by external advisors and will publish its conclusions in time for the 2006 AGMs.

I would now like to close by summarizing today's key messages as outlined on chart 13. Whilst we should not read too much into one quarter's results, we see real progress in a number of areas of the business.

Our renewed focus on market competitiveness is starting to show through in our market share performance. The challenges however remain significant, and we cannot yet be satisfied with our performance. It will take time for us to fully restore growth to the levels that we know we should be delivering.

The trading environment is mixed. Globally, we see volume development in our markets close to 3%, but price trends remain below the long-term average. Within this, we are seeing healthy growth in our D&E markets, slightly stronger demand in North America, but tough conditions in Western Europe.

We are cautious about the prospects for input costs and our capacity to recover these through increased prices through the year. We will continue to invest in our market competitiveness, with the objective of halting and then reversing our recent share losses.

Recognizing these pressures, we are driving as hard and as fast as we can to identify and deliver cost savings. Throughout 2005, we will continue to focus on our priorities; Europe, Personal Care, D&E markets and Vitality.

To date, we have seen improved growth momentum in Personal Care, and across our D&E markets, but we have more work to do in Europe. Meanwhile, Vitality is increasingly shaping our innovation program around the world.

In conclusion, we remain totally focused on the need to restore Unilever to sustainable top-line growth in order to meet our long-term financial objectives. I would now be happy to take your questions.

[OPERATOR INSTRUCTIONS]. Okay, we now have our first question and that comes from Mr. John McMillin of Prudential Equities.

Thank you Neil. John, good morning, very early morning. When you say Dirt is Good, that's not always true with financial numbers and certainly these numbers are less dirty than I anticipated or that others. But just in terms of what caused the one piece of dirt, just the [slightly] one time cut in the tax rate. I know that's happened in the past, but just what are the factors behind it?

Thank you, John. As I think we mentioned, we had a good tax rate for the quarter which benefited from about a €70m one-off which came mainly from the positive results of the completion of tax audits relating to past years. As always, we're not going to be more specific than that as you know that tax is one of those areas where we are not more specific.

What this will do, though, is that it means that assuming a normal situation for the rest of the year that the year's rate will be a little bit lower than we have been saying for our longer-term rate of around 30.

And just in terms of the advertising and promotions investment, I mean, that was supposed to be the big part of this year. Can you just give us any color? I know you said A&P was up but it's not exactly everything we're looking for. Can you just give us a magnitude, because even if you exclude the tax benefits, the pre-tax operating numbers came in much higher than I was looking for. But if it's just simply a delay in the A&P spending can you just give us some color what that was up?

Okay, well, let me just thank you, John, and let me just remind everyone that we said that we're not going to go through a detailed review of every one of the moving parts, and I'll come back to A&P in a minute, but let me explain why we're not doing this.

I know that people want to delve into each of the moving parts and maybe even ask us to give a point by point variance analysis. We believe that that won't add anything meaningful on a quarterly basis, and we will over-focus on one variance or another, and I don't think that's very different from what our competitors are doing.

As far as A&P is concerned, we have spent more. We spent more in all three regions. We spent more than we spent in the same quarter of last year, and we've spent somewhat more than we spent in the fourth quarter of 2004. And as you rightly say, John, the exact spending matches where we have innovation and where we have good things to say, and we will continue to put what we believe is a competitive spend into the market place, and that's what we did in Q1 and that's what we're going to continue to do.

And just my last question, because I couldn't pull up the slides, the Personal Care number of - Personal Care came in much higher than my estimates, but the +9 number which you said was - but then you referred to a real number stripping out the extra days, what does that translate to in terms of the strongest in six quarters? What was the actual real number?

We haven't stripped out the days by category and we don't intend to give numbers on that, but if you take the fact that the days across the world were worth around 4%, we have no reason to believe that it's particularly different for Personal Care, and that would give us a figure, 5%+, but I'll leave you to do the arithmetic.

I haven't done a detailed stripping out of the days but the 9% is certainly the highest for six quarters and we are pleased that Personal Care is moving again at the sorts of rates that we look for.

Okay, well congratulations, good start.

Thank you, John.

Thank you Mr. McMillin. Our next question comes from Julian Hardwick of ABN Amro.

Good morning.

Morning, Julian.

Just going back on the A&P issue, when you said it was up against compared to Q4, what exactly do you mean by that?

What I mean is that in terms of the absolute spends and in terms of the percentage of turnover, the A&P rate is higher, but as I said, I don't wish to get into a quarter by quarter decimal point analysis of any parts of the operating margin. I hope that's clear.

I think you've made that clear, yes.

Yes.

Can you say anything about the level of promotional spend netted off against the sales this year versus Q1 last year?

Sorry, are you talking about a split between advertising and promotion?

No, I'm saying above and beyond the A&P spending you're taking against your P&L, there is a level of promotional spending, trade promotional spending which you're netting off against sales.

Right. What we said is that the overall pricing situation is flat, and that includes any netting off of that.

Okay. Can you say anything about the underlying sales performance in North America? Can you give us any flavor for what's that looking like?

I think in the announcement text we have said a little bit about both our Foods business in North America and our HPC, and we've talked a little bit about Ice Cream and we've talked a little bit about Prestige, and I think broadly, we're comfortable with the progress and with the notable exception, as we said, that Slim.Fast again, the category has contracted and that whilst we're improving a little bit in share, I'm afraid that the volumes were down again.

Okay, and I'll have one more go and then I'll probably give up. In terms of innovation, can you say anything about how your innovation is phased over this year?

How it's phased over the year?

Yes, relative to last year.

Again, I'm not going to give guidance, and especially not telling our competitors when we're doing individual innovations, but what I have said and what I can point out is that we have a strong innovation program in Q1 but we also have strong innovation coming into Q2 and that our intention is to make sure that where we have winners, we back them, and we'll put money behind that, and we have a strong pipeline of innovation in all our key categories, so we feel good about where we are on that.

Well, it's probably not giving many secrets away. You're talking about the Group as a whole, just in terms of, is innovation more weighted towards the rest of the year than Q1 this year?

I've said that the Q1 innovation program was strong, and that we've got a strong Q2 program. I'm not going to get into a, how does Q3 and how do Q4 look in comparison to the same periods of last year. We'll do what's necessary, and we're going to put our money behind the winners.

Okay, thank you.

Thank you, Julian.

Thank you Mr. Hardwick. Our next question comes from Martin Dolan of Execution Limited.

Morning, Martin.

Yes, good morning, guys. Sorry, just to -- I don't want to harp on this a bit, but was A&P actually up as a percentage of sales?

A&P was actually up as a percentage of sales, Martin, yes. That's what I said.

Okay, up against Q1 last year, yes?

Up against Q1 last year.

Okay. Can you tell us what the net restructuring charge was in the quarter?

No, but I've told you that we had disposals in the quarter and I've told you that the growth restructuring in the quarter was substantially below what was quite a high level last year.

So if we add them both together, was it a positive number of €50m?

I'm not going to give you an answer to that, Martin, and I appreciate your asking, and I won't go through my margin analysis statement again, but I think that we have said, and we will continue to do so, that we will show you where there are big movements. And it's clear that the disposals in the quarter this time were significant. We've given you that, and we've told you that the growth restructuring was not as -- was substantially down on the figure in Q1 last year.

Okay, and --

And I think you're pretty good at arithmetic.

And just to square it all off, all the supply chain savings were matched by negative mix?

That's not quite what we wrote, and what we said is that we broadly offset the cost inflation by the combination of mix and savings.

Broadly offset? Okay.

And savings included supply chain savings, but also included the overhead savings coming through from One Unilever.

Okay, broadly offset. And just sorry, one final question, because I'm a bit confused on the trading day issue.

Sure.

It's obviously different, region by region. Is that due to Easter timing or is that due to different closing dates in the regions?

That's more due to the -- Easter doesn't change, although I'm sure there's a different Easter in Greece, from my memory, and in Russia, but it's all about the closing periods. A number of our larger companies in the Asia/Africa region and in Latin America are on a calendar basis for local reasons, and examples would be India, Brazil, China, just to take three large countries. And those companies are closing their books on a calendar basis as opposed to on a Unilever calendar.

Okay. And just some other words --

Which means that Europe, just so, you know -- the consequence of that is the trading days affected a bit more in Europe and a bit less in Americas and Asia/Africa.

Okay. And when you allocate central costs, do you allocate them daily or just on a quarterly basis?

I'm glad to say I don't allocate the central costs but we -- our costs are allocated on what you would call daily basis, I mean, on a time basis.

Okay, thank you.

Thank you, Mr. Dolan. Our next question comes from Andy Smith of Citigroup Smith Barney.

Hi, John, two questions.

Hi, Andy.

Good morning. The first question is on working capital. There seems to have been a big pick-up in both debtors and inventory during the quarter versus the end of last year. And in fact, the cash-flow in Q1 '05 appears to be a bit lower than what we were looking for. Is that delta mainly down to the working capital outflow?

And a follow-up question really following the earlier question, can you give us the underlying margin expansion if you strip out the extra trading days during the first quarter?

Let me take the working capital one first, and we'll come back to the second.

Yes.

I mean, as we've said, there is always a seasonal outflow in Q1 and this year was no different. And the second point is that our December figure at the year-end is quite a low one so we're starting from a lower base. If I compare to the same period at the end of Q1 2004, our working capital levels, trading working capital levels are significantly down on the same period last year, so we don't have concerns about the control.

Then where Easter and the calendar make a small difference is that at the quarter-end, after the month-end, a number of [inaudible] on a calendar basis and they will have been in, and therefore the creditors' figure is lower than it was in the same period of last year which obviously has a negative impact on working capital.

The difference in the cash-flow in the quarters, about €0.2b, you would not see as a significant movement. Clearly we continue to run the business as efficiently as we know how to do so, and it's an area of significant attention, but there's nothing structural changed in the seasonal phasing of our working capital.

And with respect to the other question, John, on the underlying margin expansion in Q1?

Yes.

If you strip out the extra trading days?

Right, well, Martin asked the question about how we do our cost allocation, and the answer is, on a time basis, depending on the actual days so that there shouldn't be a significant impact on margin from the fact that there are more days, other than the fact that we have more sales on those days and that produces pro rata but that will come back again later.

Okay, just one final question if I may. Reading the commentary, re Europe, obviously the Food performance in Q1 was relatively good and HPC impacted by the U.K. was relatively poor.

Yes.

And yet you comment about improved mix. I can't quite reconcile that comment because of course, I presume that your HPC profitability is much higher than your Food profitability?

In some categories that's true, in others it's not, and you will see that within the Food, we had a good mix. We had strong performances in some of our higher margin categories and we had a strong Personal Care quarter which tends to have a good situation. On top of that, of course, we have made a number of portfolio changes over the last couple of years, all of which helps the mix on an ongoing basis.

Okay, thank you John.

Thank you Andy.

Thank you, Mr. Smith. Our next question comes from Victoria Buxton of Lehman Brothers.

Morning, Victoria.

Good morning, John. I've got a couple of questions on categories, if I may. Firstly, on Spreads and Cooking Products, obviously the performance in Q1 stands out at over 9%, like-for-like growth which I judge is not really a sustainable level. Can you tell us where we are in terms of the roll-out of innovations from last year and where you see a sort of more normalized growth trend within Spreads and Cooking Products going forward?

And also, I seem to remember from a couple of years ago that the switch in Easter from Q1 to Q2 caused a weakness in that category and I was wondering whether you could strip out what the Easter effect was this time, obviously being a benefit to that number?

And in Homecare and Other, I was wondering whether you could split out the performance of Laundry in Homecare and taking up on the theme of Laundry, could you give us some more detail about what's happening in the Laundry category on a broad region by region basis?

Okay.

And perhaps some indication of what the strategy is on that for Unilever for Laundry on a regional basis?

Let me stop you there, because you've already given me three questions, Victoria and --

I apologize.

And I'm in danger of losing the first one by the time I've listened to the fourth one. The first question was, you were commenting on the Spreads and Cooking Products where we had good growth and was this innovation based and where did it come from?

Clearly, we're very pleased with a good quarter, and our innovations are going well. I think I also mentioned that it's not just the innovations that are driving it but that we've also had good core growth, and that this is -- these innovations are synergistic to the main brands which is very good. That's how we like it.

So, yes, pro.activ is going well, but so is the base core, Flora/Becel. Similarly, with the dairy cream alternatives, we had some innovation led growth but the basic Family brands, which have been pushed on the nutritional side have also done well. So what we have is a fairly solid combination of innovation and core brands, and as you have remarked before, this has been a couple of quarters, so we feel good about that.

As far as the Easter effect is concerned, certainly Food categories probably more affected by Easter than HPC, and there will be some positive, but we don't see this as a significant issue, but yes, [candentially] that's certainly the case.

I think the other question was on Homecare and Laundry?

Yes, if you could split out the performance of Laundry and Homecare and then perhaps go into a more regional summary of what happened in the Laundry category?

Well, the Laundry category is, I think, first of all, the majority of our Homecare, if I just take household cleaning off. We had a reasonable quarter on household care. Like-for-like sales were broadly flat, down a bit in Europe, but that was more than compensated for by the progress in D&E so we're really talking about the Laundry, which is both cleaning and conditioning.

Across the world, we are pleased with our progress in the D&E world. We've got good market positions and we see steady, or indeed, in some places, increasing market share, so this is translated into healthy volume-driven growth on Laundry, across our D&E world.

In North America, it remains a tough competitive battle. We have some new products in the market softening, and we have a Dirt is Good campaign for Whisk. In Europe, we've commented that we have lost a little bit in Laundry in the quarter in the U.K. Outside of the U.K., our position is broadly stable.

Hey, sorry, I didn't really understand what you were saying about the split between Homecare or Household Care and Laundry in terms of the relative performance, so if you can just --

I was referring to -- the performance for the category in the quarter is by and large the Laundry performance.

Okay.

And Household Care was not causing any major fluctuations in what you're looking at.

Okay, thank you very much.

Okay, thank you.

Thank you Ms. Buxton. Our next question comes from Mr. Stuart Reed of Credit Agricole Asset Management.

Good morning, two questions, if I can. Firstly, can you talk a little bit about what the disposals did to the margins on the regional basis? I mean, obviously the disposal impacts were reasonably significant, particularly in Europe and Asia/Africa.

And the second question is just going back to the cash-flow. Obviously between operating profit, €1.4b and the cash from operations, about €800m, how much of that is the working capital and how much of it is the spend you had on restructuring out of, presumably, previous year's provision?

Okay, let me take the disposals first, and I would say that of the €73m that we quoted, somewhat over half was in Europe and around 30% was in Asia/Africa.

Sorry, John, the question was more about the margins of the businesses that you sold. Were those margins of the businesses you sold less -- more or less than the [inaudible]?

Okay, sorry, I misunderstood your --

No, that's okay.

Misunderstood your question. I'm not sure I can answer that one straight off the top, but we have been, by and large, making disposals which improve the mix, and that's been one of the drivers, but obviously it's not only looking at margin. We've also made disposals where it made strategic sense not to be in a particular category, or where we felt we had a brand portfolio which was better served without particular brands in.

So there are one or two cases where even though the margins may have been good, we have disposed of. In aggregate, the disposals clearly have helped our mix and again, actually, I would say that that's been true across the board but that the disposals have been more in North America and Europe than they have been in the developing regions, obviously.

Okay.

But it's bigger. And the only area I can think of, of significant disposal, is in India and certainly has helped the margin.

Okay, thank you. And the cash-flow question?

Cash-flow, the - can you repeat the question, sorry [inaudible]?

Yes, okay, so operating profit in the quarter was €1.4b.

Yes.

Cash-flow from operations is roughly €800m. You've mentioned effectively two key differences between those figures are the working capital absorption and restructuring spend. Can you just sort of split how much comes from each of those sources?

I haven't got a split but if I was to talk off the top of my head, which is always a dangerous thing, and I'm sure my colleagues will shoot me, I'm pretty sure that the significant issue is indeed the working capital movement that we get in the year -- in the quarter. As I said, the first quarter is always a quarter in which we have a significant outflow from working capital, and the size of the number doesn't surprise me significantly there. But if I've got a better answer, I'll come back to you on that one.

Okay, thank you.

Thank you, Mr. Reed. Our next question comes from Mr. Graham Jones of Panmure Gordon.

Good morning, John. I've got a question about Asia/Africa and about the margins in the division. I mean, I fully appreciate that you're not going to go into detail about restructuring and marketing spend, but you did say that you'd help us understand the underlying movements.

You've talked on a number of occasions about the strong bounceback in sales in India and the good innovation but you haven't mentioned what's going on with profits there. I mean, Hindustan Lever seem to be reporting that margins have collapsed in the key categories, that soap and detergents margins have gone from 20% to 11%, and Personal Care margins have declined by about 800 basis points as well. Do you think you can just comment in slightly below the sales line in what's going on in India because clearly it's quite important for you?

Okay, well, let's just deal with Asia/Africa in total. As we've said, there were disposals and in South Africa, for instance, that helped the margin in the quarter. The Indian situation I think is probably best looked at when you look at the Hindustan Lever results which I'm sure you've done, which did indeed show that profits were down, although I'm glad to say we've returned the business to healthy growth but that's a very good piece of news.

The clear profitability step-down came last year when prices were reduced, and as we said then, that it will take some time for volumes to offset that, particularly in the Hair area. And the business is supporting its brands across the board, so we're not saying that the Indian situation is back to where we want it to be, but I think we've given fairly clear views as to what we're doing in India and what it will take to make sure that we maintain our very strong position there.

In terms of our South Latin America and other areas, we're comfortable with the margin development. It isn't -- as we've said, Home and Personal Care is under more margin pressure at the moment than Foods, and we're not yet at a stage where we can be confident that prices will offset the higher costs, so we need to work hard to get our costs down to make sure that our margins are sustained. And we will do what it takes on the marketing spend. So Asia/Africa continues to be an area where competition will remain heavy, and we will do what it takes.

Okay, but in the past I guess Unilever's mantra has been about earning the right to grow. Has that been suspended for the moment in that you're going to do what it takes, anything it takes to deliver the sales growth [inaudible]?

I'm not a great person to put new mantras into [Pathe's] mouth. I think he was very clear on his objectives and his way to make sure that we deliver shareholder value, and I don't really intend to reopen the whole thing. I think one other thing that maybe worth bearing in mind is that in the first quarter of last year, we had a very good Homecare margin, unusually helped by some disposals, and our Homecare margins at the moment, we would say, are in good shape compared to a few years ago, and we intend to keep that.

Okay, and then just a final question on Brazil. You commented that Q1 sales are flat.

Yes.

Clearly you had a very strong performance in Q1 last year in Brazil. Are you confident that it is just that? I mean, interest rates have been picking up in Brazil. You haven't seen any other issues arising in Brazil in Q1?

I have not seen any other issues arising in Brazil in Q1.

Okay.

I have to say that the underlying business is one of our stronger businesses, as you, I think, are aware, Graham.

Yes, okay.

Nothing structural changes there whatsoever.

Okay, thank you.

Thank you.

Thank you, Mr. Jones. Our next question comes from Mr. Albert [Greckdot] of Kepler.

Yes, morning.

Morning, Albert.

I have a few questions, first of all on Hellman's in the U.S. Could you tell us whether there was top-line growth for Hellman's in the U.S.? Secondly, on Bertolli, when did you actually complete the roll-out in the U.S.?

Yes.

And if so, could you give us a first indication of the first sales results? And then lastly, on Slim.Fast you sound quite pessimistic for the [sales] prospects for '05. Can you tell us a little bit what you're seeing in the weight loss category please?

Yes, okay, fine. As far as Hellman's in the U.S. is concerned, I did highlight Hellman's in the speech and you would not have expected me to highlight it if our main brand, you know, in the main country, wasn't doing well, so you can take it from that that we're comfortable with the position on Hellman's.

Thank you.

I don't have at my fingertips the absolute number for the first quarter and if I had, I'm not sure I'd give it to you, but I know I'm comfortable with Hellman's in the U.S.

As far as the Bertolli frozen meals is concerned, we went nationally in, I think, January, having been in test market for the last several months, I think 18 months/2 years if my memory's right, in the New England area; and I think at the moment what I'd like to say is that we're on plan, and I know that my colleagues in the U.S. are quite excited by the Bertolli roll-out; but we've known -- you know, we have a lovely saying in Unilever which is, it's too early to tell, and sometimes that's actually true, and 2 or 3 months after a roll-out, that's the situation. But so far, so good.

As far as Slim.Fast is concerned, yes, I am sanguine. We didn't expect any growth in 2005, but we'd have to say that the category contraction has been somewhat greater than we hoped it would be. Our position in the category is, as I said, still very strong and in fact we've increased our share, but we've increased our share of a category that's contracted.

We never expected it to go up this year, and, as I say, we remain cautious about how and when that will turn around again. This is a category which has had some fairly large cycles in the past as well and when we took the impairment at the year-end, we did that on the basis that we would not see a return to growth this year, and I would be misleading you if I said we were pleased with performance.

So is that still a matter of say, alternative diets that are still sort of?

Yes. As I understand it, and I have to say I'm not necessarily an expert on the weight management category, as I understand it, what's happened is that with Atkins there was a huge move to the low carb diet.

Over the last period that's dropped off, and people have returned to more general healthy eating, and more balanced diet, and they haven't necessarily yet returned to weight loss management programs as such, and we've experienced this with some upturn in some of our other categories which were hit with the low carb phenomenon, and we mentioned pasta sauces as an example, which are now coming back a bit strongly because they lost out last year on that. So we're gaining from that where we're losing in the weight management area.

Okay, thank you.

Thank you.

Thank you, Mr. Greckdot. Our next question comes from Olivier Lebrun from Natexis.

Good morning, Olivier Lebrun.

Good morning, Olivier.

Natexis Bleichroeder in Paris. I have a question about Asia/Africa. Would you give us a breakdown of your pricing impact between these two regions? Is the pricing effect a negative in Asia or not?

We're not going to break down individually between Asia and Africa, but there is, to my knowledge, no significant, major swings across the regions. Clearly, the Asia/Africa region covers everything from North Africa to Australia, and generalizations about the Asia/Africa region are always a little bit sweeping.

But the pressures on our businesses around the world are similar, depending on which categories those businesses are in, and as we've said, Home and Personal Care, because it's mineral oil based materials and tends to be plastic bottles, tends to be under more pressure than some of the Food categories. Tea has its own particular swing.

India, we've talked about. Japan is in a deflationary area but price there is not an issue. It's about innovation and being able to innovate at the right levels. And I would be misleading you if I could give you any view as to pricing across the whole of Africa, or across the whole of Asia having any particular differences.

Okay, thank you.

Thank you Mr. Lebrun. Our next question comes from David Lang of Investec.

Good morning John.

Good morning, David.

I'd like to return to Julian's question about the trade spend. In recent years the escalation in this line has been an ongoing feature, running at 1%-2% and it was running at something like that rate in the last quarter of last year. From what you're saying now, it seems to have declined substantially and your comments seem to mirror those of recent ones of Colgate who were saying there's been a big drop-off in the level of trade spend. Is this the case?

I'm not going to answer that question with a yes or a no, David. I don't believe that there was a significant change in what you're calling the trade spend, which I imagine you mean the amount of money that we spend above the line that goes into price?

Yes, yes. But there was a significant change in Colgate in the quarter.

Yes, well, Colgate have given whatever numbers they give and they operate in certain categories, and they have --

[They're saying] your overall price experience of, basically level of prices includes the trade spend?

I don't.

Yes, that's fine. So moving on, you talked about Ice Cream. How about the other end of the Ice Cream and Frozen Foods business? How is the revitalization of the IBF brand going and particularly, the I part?

The -- I think there isn't one answer to that. We have started earlier in the U.K. and it's making steady but not dramatic progress, but we're making steady progress, and we've had growth in the U.K. and that's gratifying. It's early days on the Continent and we have not got direct -- I haven't got every country and every area but Frozen Foods is neither a strong nor a particularly weak issue for the quarter.

Yes. Well, one hears that Findus is going quite well, so presumably it's still getting going?

Yes, as I say, I'm not going to go through country by country.

Yes.

You know, it [includes] Germany, Holland, Austria, the main countries. As I said, there's nothing to alarm us in the first quarter.

Good, thanks very much John.

Thanks, David.

Thank you, Mr. Lang. Our next question comes from Tim Potter of Goldman Sachs.

John, good morning.

Good morning, Tim.

Do we have any idea, or will you share with us any movements in the gross margin between the quarters?

We have an idea. We're back into the issues of breaking out the individual pieces, Tim and for reasons that I tried to explain, I've refrained from doing that. The definitions of gross margin differ, as you probably know, in between us and some of our competitors, and sometimes these comparisons become very difficult, so it's more important to say what's happening internally to ourselves rather than to look at any absolute numbers.

Clearly, we do have cost increases, and we've talked a bit about them. We've always been able, because of the breadth of our portfolio, to be in a position where we're somewhat less affected by movements in individual commodities, and that's happening again, so we've got the Food commodities moving in a slightly more favorable way than we have the mineral oil prices going into the Chemicals industry.

The savings programs that we've got, and we've talked a little bit about how we've balanced the savings programs against the costs, clearly those feed into the gross margin, although some of them - and we've explained that our supply chain restructuring is ongoing, but the One Unilever simplification project which feeds mainly into overheads has been growing, that goes into the overhead and not into the gross margin.

So if we look at our cost pressures, and we look at where we're getting savings, they don't always match at each line of the P&L, which is why we're refraining from getting into a sort of forensic comment on each, but I understand the question, and that's why people have been trying to tease out of us exactly what's happened to the A&P because that allows them to get at the gross margin and into the overheads, and we're not going to give detail on that, but I think I've given you some flavor.

Okay, thanks. Do you think that you would, through the year as a whole, balance the margins being relatively flat with the accelerating top-line?

Yes, nice try, Tim, but we've said that we're not going to give an outlook and it would be wrong for me to change that now.

Okay. Finally, on the management changes, you mentioned 100 senior staff appointments announced.

Yes.

Out of how many total senior appointments is that, and are all the changes now in place?

The answer is that the majority of the changes are in place, but not all of them, and that won't surprise you. This is a very significant number of changes across the business, and a deep reaching change within Unilever, and it does involve quite a lot of moves.

The 100 appointments is a significant part of the appointments that will be made in this round, and the senior appointments in the regional and the category teams have been made, and those teams are up and running. And we have plans across the business.

Remember also that last year we announced the One Unilever plan, which goes much deeper than the top management and that, we've always said, will take us a couple of years to implement, so there will be ongoing changes through this year and through next year as we transition to the new organization and really get the benefit of the leaner organization, which I remind you, the top management changes are more so that we can react better and quicker and be more closer to the market than they were designed as cost savings. They have the positive benefit of cost savings coming with them.

Thanks very much John.

Thanks Tim. I'll take perhaps two more questions and then I'll have to wrap it up, but obviously we're around to take any further questions, because I know there are still people on the round. So if I could take two more?

Thank you, Mr. Rothenberg. The next question comes from Andrew Wood of Bernstein.

Good morning, John.

Morning, Andrew.

First of all, I'm not going to try and tease out of you some more details behind the margin performance. I'm going to ask you a more general question if I may, and clearly 80 basis points of margin growth and 25% EPS growth is a largely meaningless figure, or largely meaningless figures in trying to understand the underlying performance of Unilever.

So my question to you is, why do you feel comfortable just providing these figures without giving any guidance to investors and analysts about how the business is performing on an underlying basis? That's the first question.

Secondly in relation to A&P, I disagree with you where you say that people are asking you about A&P to try and understand the net margin growth. I think people are asking you about A&P because increasing A&P and sustaining that A&P investment is a key part of the new Unilever operating approach under Patrick Cescau; and so I wonder why you're not prepared to at least give some guidance as to how much you're investing and proving that you are sustaining that over time?

And then a third question is, at what point are you going to be prepared to give some detailed guidance behind your margin growth and your advertising spend? Is it just an annual figure you're going to give? Is it semi-annual or are you just not going to give that figure ever again? Thanks.

Andrew, thank you. As usual, I agree with some of the things you said, but you won't expect me to agree with everything. On the A&P, I think you're absolutely right, and I'm delighted that's why people are questioning us on A&P and I hope that I'd given at least some indication to you that we have indeed continued to spend, and that we will continue to spend, but we will do it behind those things that we believe will give us the right return on that, and we will do it in relation to what's happening in the market places in which we operate.

So I accept fully your views as to why people are wanting to ask us about A&P and I will continue to try to do that without going into over-forensic views on a quarterly basis.

As far as the meaningless figures to understand, I have very clearly, I hope, said that -- and I think I said it in my presentation as well as what we wrote in the announcement text, that we've guided people away from assuming that the 80 basis points and the 25% EPS growth were in any way the underlying performance for the business; and we've given people some clear indications as to why those figures, which are the results of the quarter, and which we need to report on, why they need to be qualified and I believe that we've done that in a way which certainly you and your colleagues will be able to understand and to be able to make sense of.

So that would be my answer to that. And as far as what we will do going forward is that we have said we're not going to be tied into guidance this year. We've explained why we're not going to do that, and it's something that we believe is in the interests of our shareholders, not to be as forensic as we have been, and we will keep that position and obviously we will continue to listen to people, and to listen to our shareholders and do what we think is the right thing for the business.

Okay, John, well, I can say, and I don't want to get into an argument with you, that you have not provided me with sufficient data to allow me to understand what the underlying performance of Unilever is, so perhaps it is something that you can consider for the next quarter reporting, that you are prepared to give a little bit more data.

But my third question really was, are you going to be giving -- it's nothing to do with guidance. It's, are you actually going to be giving A&P spend on a half yearly basis or a full yearly basis, and are you going to be giving some more details on your restructuring spend on a half yearly or a full yearly basis?

Well, it comes back to your first question which is that you're feeling that we haven't given you enough for you to be able to understand it. We can have that discussion and I'd be happy to have that, because that answers the second part of your question. And so let's have that discussion offline.

Okay, thank you very much.

Thank you, Mr. Wood. And our next question comes from Mr. Arnaud Langlois of JP Morgan.

Arnaud, good morning.

Good morning. I had a few questions. First of all, on provisions, [I see] the provision declined balance sheet from year-end 2004 to the end of the first quarter. I would like you to make a few comments about this, and maybe explain also the movement this may have had on your cash-flow statement as well as on P&L.

And in addition, I was wondering to what extent working capital increased in the first quarter, give us a full explanation behind the decrease in operating cash-flow and free cash-flow. I mean, just using the numbers you provided in this quarter, free cash-flow seems to be down 50% in the quarter, so I have some difficulties to understand how this can be just explained by working capital increase?

And thirdly, if you could comment on Personal Care? I think it's quite interesting that the margin in this quarter is up 400 basis points to 23.4% and I mean, in that context, could you basically tell us whether A&P is up or down in this division? Thank you very much.

Okay, let me take the last one first because it's probably the easiest. Personal Care, the operating margin I think was 200 something basis points higher than last year. About half of that comes from lower restructuring and yes, investment in A&P in Personal Care was up, and you'll be surprised if it wasn't, as we've told you where our focus of priority lies for this year, and where our innovation program is becoming, so I hope that answers your questions on Personal Care.

The provision declined from the year-end, I think I was asked earlier how much of the change was due to working capital and how much was due to restructuring and I believe the answer was around three quarters, which was my inclination, but somebody's been doing some arithmetic for me and it is around 75% and about 25% was the change in restructuring.

And I would need to go into more detail than I have at my fingertips at the moment to explain the provision moves in more detail, but there is nothing that when we went through it that came out and bit us.

The working capital movement, of course, as we go to a smaller base, the percentage movements become smaller because we're talking about differences between large numbers. And as I think I answered before, the working capital movement in the quarter was larger than the previous year, partly through calendar issues but in aggregate, is not a figure that is out of line with our normal seasonal movements.

And it may be, and I'd need to check on this, that IFRS has had some effect on the changes that we're looking at, and we need to look at the numbers you're looking at and go into some more detail on that. Sorry not to give you a better answer, Arnaud, but that's where I stand at the moment, and we'll happily follow that up.

Okay, thank you.

Thank you. I think with that I'd like to draw the call to a close. Thanks very much, everybody, for listening on what for some of us was a morning where we had a night before which involved an election, so I was probably not the only one who had a late night.

I am aware that there are a number of people who still had questions and the team will be back in the office after this call and I, or any member of my team would be very happy to pick up on any further questions that people have had, and I will continue to listen to you to hear how we can make sure that we make the best use of these calls going forward in the future. So thank you very much everybody, and have a good weekend.

Thank you, Mr. Rothenberg. This conference has been recorded. Details of the replay number and access codes can be found on Unilever's website. An audio archived webcast will also be available on Unilever's website, www.unilever.com. Thank you very much, and good morning.