聯合利華 (UL) 2006 Q1 法說會逐字稿

Welcome to Unilever's 2006 First Quarter Results Conference Call. This conference will begin with a presentation by Mr. Rudy Markham, CFO, followed by Mr. John Rothenberg, Senior Vice President Investor Relations, concluding with a question and answer session. [OPERATOR INSTRUCTIONS] We will now hand you over to Mr. Markham.

Good morning everybody, and thanks for joining us on Unilever's Q1 conference call. I'm here today with John Rothenberg, who will shortly talk you through some of the key features of the first quarter's results. 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.

Turning to chart 2, you will gather from our press release issued earlier today that we see our first quarter results as putting us firmly on track to deliver our business objectives for 2006. Consumer demand across the many markets in which we operate is much as we expected. Strong in D&E markets, solid in North America, but with growth in our categories remaining somewhat sluggish in Western Europe.

Underlying sales growth in the quarter was around the 3% level that we achieved in 2005 and our aggregate market shares remain broadly stable.

Furthermore, the main way to the strong 2006 innovation program is still to come. There have been recent increases in some commodity costs which, if sustained, would leave to input costs being slightly higher than we had expected. Nevertheless our savings programs continue to deliver to expectations to the extent that we remain confident that we will deliver the margin improvement that we talked about in February.

You will recall that our objective for 2006 is to sustain our top-line growth and improve our margin. We aim to achieve this through a focus on our business priorities, Personal Care, D&E markets, vitality-based innovation and the restoration of growth in Europe.

Our performance in the first quarter confirms that we're making progress in all these areas, and I now hand you over to John who'll take you through this in more detail.

Thanks Rudy and good morning everybody. Turning to chart 3. Our underlying sales growth in the first quarter was 2.9%, with 2.4% coming from volume and 0.5% from price. This is the second consecutive quarter of price growth following the 0.3% increase last quarter. We are raising prices in a number of markets where our market positions and pricing power allow us to do so. This is partly masked by the year-on-year drag effect from strategic price reductions made during 2005, most notably in Europe. The combination of one less day in the quarter and a later Easter may have had a modest impact on sales, but that would of course revert out in later quarters. We said back in February that our strategy going forward is focused on building stronger leadership positions in key markets and a more powerful presence in high-grow spaces.

As Rudy mentioned for 2006, this means continued focus on our priorities as detailed in chart 4. Our Personal Care and D&E businesses continue to deliver good growth. Personal Care grew by 6% in the quarter, notwithstanding some U.S. trade de-stocking. We've had particularly strong programs in both Skin and Deodorants during the second half of 2005 and on into 2006, which have driven strong sales in brands such as Axe, Rexona, Dove, Lux and Ponds.

D&E sales grew by 8%. This growth was broad based across Foods and HPC and across geographies, with India, China and Russia all growing in double digits.

And Vitality is increasingly embedding itself into the fabric of our business. For example, 10 out of our 15 priority innovation projects in Foods are directed explicitly at the health and wellness needs of consumers.

Looking more specifically at Europe in chart 5, underlying sales in Europe declined by 0.5% in the quarter, but with some good news in a number of areas. We take these as clear signs that the actions we are taking to restore competitiveness and growth are having the desired effect. For example, in the U.K. by far our largest European business, we saw sales stabilize in the quarter after a steep decline during 2005.

European Home and Personal Care has similarly stabilized in Q1 with good performances in Skin and Deodorants driven by innovations such as Dove, Summerglow and Axe Click. And in Foods, investment behind savory and heart health through our Knorr and Flora based sale brands have been rewarded by good growth in the quarter. Set against these improvements ,we had a slow start in European Ice-cream, not helped by the late Easter and cold weather. We also had a weak start to the year in France, after a strong Q4, largely a consequence of trade de-stocking, linking to the timing of price increases.

The overall message for Europe is that we are seeing some reward for the efforts we are making to turn around this business, which should start to be reflected in an improved top line performance.

Rudy mentioned that we have a strong innovation program for 2006. We had some important innovations that hit the market during Q1, but many of this year’s more substantial initiatives are still to come. A new organization is helping us to put more firepower behind fewer but bigger opportunities, and I'd like to highlight just a few of these, starting with HPC on chart 6.

In Q1 we saw the global launch of the new Axe variant, Axe Click. This has been supported by an extensive global advertising program, including some truly ground-breaking work using viral marketing and other internet based tools, designed to appeal to Axe's teenage users. Also in deodorants the World Cup will provide a platform for an exciting marketing and innovation program behind Rexona. We had a similar campaign in Australia around the Commonwealth Games, which lifted Rexona's growth and market share. Sport, Sweat and high efficacy Antiperspirants is a compelling combination.

In Hair, quarter one was a relatively quiet quarter for innovation with the main news centered around a new Lux Super rich range in Japan, which has been well received and Dove Colourcare products in Europe and North America.

Looking forward, our global Hair program will heat up with some important initiatives to come across the world. We've just completed the sale of two of our minor hair brands in the U.S., Finness and Aquanet. We've done much to improve our Hair portfolio in the United States over recent years through the development of Suave and the launch of Dove Hair, and it's about to get a substantial boost with the introduction of Sunsilk to the U.S. market later in the year. I can't say much more about this at this stage, but this is a prime example of the kind of large-scale initiative that our new organization is supporting.

Another area worth mentioning is Household Care, where both CIF and Domestos are doing well, thanks to strong innovations during 2005. We have an equally strong program in 2006 with products such as CIF Best Ever trigger sprays and the Domestos Premium Bleach. Not only are these innovations working, but they are being rolled out rapidly across our markets. Also in Q1 we took CIF into Russia for the first time. Worldwide Unilever's Household Care business grew by 6% in the quarter, maintaining the momentum established during 2005.

The strength of our global innovation program applies equally to Foods, as shown in Chart 7. For example, we continue to leverage the consumer appeal of our Flora base sale heart health brands, with Olive Oil based products being introduced across parts of Europe and Latin America. Also on the theme of Vitality, we have launched Wishbone Salad Spritzers in the U.S. with only one calorie per spray, while in the U.K. we will be shortly launching Adders Soy-based Food drinks, adapting a health concept that has proved hugely successful in Latin America.

Food Products need to cater for local tastes, but good ideas travel around the world just as well in Foods as they do in HBC. Our innovation program for Knorr is a case in point, thus in Q1 we have launched low unit price Bouillon cubes into new markets across Africa and Central and Eastern Europe, following the success of similar products in Latin America. We've introduced fresh soups in pouches in Poland and Russia after these products transformed what was a declining market in The Netherlands and we have an extension program over the next few quarters to drive Knorr product innovations across multiple markets.

And finally Ice-cream, where a weak start in Europe contrasts with strong innovation-driven growth across the world including the United States, Brazil, Mexico, Australia and Turkey. In the United States our Ice-cream business continues to grow and gain share. We've launched new, more creamy varieties of Breyers Double Churned Ice-cream, new Popsicle products for kids and Ben & Jerry's Sorbets and Cones. Elsewhere we're introducing new healthier kids novelty ice-creams with no added sugar and higher fruit content, and we have an exciting 2006 program behind Magnum right across the globe.

In summary, the strength of our 2006 innovation program, together with the rigor with which resources are being channeled behind it, gives us every confidence that we will sustain our growth moment as we move forward.

Turning now to operating margin in chart 8.

Before the impact of restructuring and disposals, the decline in operating margin was 30 basis points, entirely due to a corresponding increase in A&P. This increased investment was focused on our business priorities in Personal Care, D&E and Vitality, and in particular behind key innovation projects in Skin, Deodorants and Savory. This means that the combined benefit of positive pricing, substantial cost savings and a modestly positive volume mix effect was sufficient to offset rising costs in the quarter.

Commodity-related cost increases in raw and packaging materials and in distribution continued to run at a similar level to last year, equivalent to around 150 basis points. We also saw some knock-on effect of the higher oil price in manufacturing in other areas. We still expect these cost pressures to ease slightly as we go through the year, although the recent hike in mineral oil price, if sustained, would lessen our head room.

Meanwhile our savings programs continue to deliver at a consistently high rate, at around 180 basis points in the quarter, of which approximately half comes from our global buying program and the rest from One Unilever and other savings initiatives. During the quarter we made further significant progress on One Unilever. Over the past few months we've announced three outsourcing agreements, with IBM for the purchasing of non-production items in North America, again with IBM for the provision of financial shared services in Europe and most recently with Accenture for the management of European IT operations. We also announced unified organizations for our businesses in the U.K. and France, and there are other important One Unilever initiatives in the pipeline which we expect to see crystallize in the near future.

61m of largely One Unilever-related restructuring was charged in the quarter. This was more than offset by disposal gains due principally to the sale of more frozen snacks in The Netherlands and a hair oil brand in India, to leave a net credit on restructuring disposals and impairments in the quarter of 58m.

At this point I'd like to say just a few words about the European Frozen Food business that we are intending to sell.

We are making good progress in what is a fairly complex disposal process, with the Information Memorandum due to go out to selective prospective buyers by the end of May. We've already had expressions of interest from a number of parties and remain confident that we will be able to complete the process before the end of the year. Meanwhile, the performance of this business is similar to last year. Profitability remains good, but sales continue to be under pressure due to weak market conditions, although we have seen some recent market share gains in the U.K. We've classified this business as a discontinued operation under IFRS, and a full set of restated 2005 numbers is available on our website.

As a consequence of this restatement, Unilever's 2005 operating margin, on a continuing basis, is reduced by 20 basis points to 13.2%. Nevertheless, we are not changing our outlook of a 13.4% floor for operating margin in 2006, recognizing that this lower 2005 base is compensated for by the disposal gains realized in the first quarter.

Moving on to other aspects of our financial performance in the first quarter on chart 9.

Total earnings per share increased by 7% in the quarter, while earnings per share on continuing operations grew by 9%. There are a number of drivers of this performance worth mentioning. Firstly, exchange rates. A number of currencies strengthened against the euro during the course of 2005, boosting sales and operating profit by between 6% or 7% in the quarter.

Secondly, financing costs were down 30m due to the benefit of higher asset values on pension financing and lower net debt.

Thirdly, the tax rate of 24% was only slightly higher than the 23% incurred in the first quarter last year, which benefited from a number of one-off items. This time, the lower rate reflects an advantageous profit mix between countries, as well as other improvements. For this reason we now expect our tax rate in 2006 to be around 26%.

Finally, minority interests are €22m higher in the quarter, almost entirely due to one-off disposal gains realized in India.

Net debt at the end of the quarter was €10.3b, €0.2b below the level at the start of the year.

Net cash flow from operating activities was €0.3b in a quarter that is traditionally light due to the high seasonal outflow into working capital.

In summary, our Q1 results keep us on track to meet our 2006 objectives, sustained growth and margin improvement.

We continue to grow in line with our markets and we have confidence in a strong 2006 innovation program. We are directing our marketing investments towards fewer, bigger initiatives and we are seeing the results, and we have our costs structure under tight control.

Rudy and I would now be very happy to take your questions. Thank you.

Thank you Mr. Rothenberg. [OPERATOR INSTRUCTIONS]. Our first question comes from Mr. Julian Hardwick of ABN AMRO. Thank you.

Good morning, Rudy. Good morning, John.

Morning Julian.

You mentioned in the course of your presentation a number of factors which impact the sales in the quarter, and I just wondered if you could put some numbers around those. And I'm thinking specifically of the trading day, the phasing of Easter and the U.S. de-stocking?

It should also be helpful if you could tell us what the rate of decline in the Frozen Food sales was in the quarter?

Right. Thanks, Julian. Let me just deal with the days point that you make. Yes, obviously there is some effect from all of the things that you've quoted. Our difficulty is quantifying exactly what that is. We've done that in the past, and the conclusion we've come to is that it has not always been very helpful in judging the performance accurately.

Of the three features you mention the day in the calendar, Easter and the trade de-stocking, we haven't collected any detailed data on any of those, so I can't give a number, with one exception and that's the trade de-stocking in the U.S., which we obviously particularly looked at because we wanted to make sure that we were seeing a trade de-stocking and not a decline in consumer purchase. So we check our market shares through this particular customer, and we were satisfied that they were quite even during the period. And that's important to us.

The net impact however of that declined in stock in the first quarter was, I think – I’m just looking at John -- I think it's something like 20m. So in basis points I guess John that's--

Just about 20 basis points.

Yes. So that's the days, John. The other one you wanted the sales performance on Frozen Foods. Remember-- This is the Frozen Foods in our continuing operations, I take it you're-- ?

No, actually I'm interested in the discontinued operations.

I think, Julian, I've said that the trends on that business are similar to last year. And I'd like to leave it at that at this moment, as you know we're in the process of going out with the sale document, and at this moment in time I'm not prepared to give detailed information on each of the individual elements of the Frozen Food business for sale.

Okay, and just on the margin guidance for the year, could I just clarify. Are you assuming that there will be any further disposal of profits when you are looking at the guidance that your margin will be above 13.4% beyond what you've booked in the first quarter?

Well, you'll remember what we said in February, Julian, which was that we were going to give an outlook for the operating margin base of 13.4 at that time, and we've reconfirmed that now, despite having taken out the Frozen Foods business. And the second bit of guidance we gave was that we were anticipating gross restructuring costs of 100 basis points. And we said we had no other predictions at that point in time on any other items which might either in the area of disposals of impairments, and that continues to be the case today.

Okay. Thanks a lot.

Thanks Julian.

Thank you very much indeed. And we now move to our next question which comes from John Parker of Deutsche Bank.

Yes, good morning. If I could return to the U.S., I mean it was a feature of the performance at Unilever last year that U.S. like-for-like sales growth improved quite markedly through the quarter, so obviously a little bit disappointing to see this 1.1% growth in the first quarter.

Could you just clarify that de-stock impact? And would I be right in thinking that that would have taken about 1% off the growth in the U.S. from what you've said, and instead of 1.1 it would have been closer to 2% if you hadn't had the de-stocking?

But the 20m is about 1% on the U.S. growth, John. That's right.

So, that would still be a little bit a slow-down compared -- and a reversal of the accelerating trend we saw last year. Could you-- ?

Give a bit of color John on the--

Yes. I'd particularly like to know if Food and HPC, what sort of growth they showed well relative to each other?

I'll give a picture. We had good performance in Ice-cream again in the quarter, not far off the sort of longer-term trends that we've seen in Ice-cream. We had if I may, since we're on Foods, a recovery in growth for the first time for several -- for a couple of years now in Slimfast, which is pleasing in another context, as you'll well appreciate. Across the rest of Foods we had good performance.

Within the HPC, we were a little more mixed. We had continued success with our Deodorants. That remains our star number one category. And good performance in Personal Wash. I would say in the other categories, in Hair and Laundry, the situation was somewhat more competitive, and Laundry was certainly highly competitive in the quarter.

Okay. Thank you.

Thank you very much indeed. Okay we now move to our next question, which is from Ian Kellett of Blue Oak Capital.

Morning, gentlemen.

Morning Ian.

Morning, Ian.

A couple of questions if I may. Firstly, I'd like to go back to what Julian was talking about with Frozen Food, notwithstanding John's reluctance to go forward. Could you just remind us what you said about the sales performance of Frozen Food last year so that we're all clear? It's clearly no further revelation.

I think just to make it -- to give you one of the things I think you want clarification on Ian, if we were to take out the discontinued operations, that would improve the growth rate by something like 20 to 30 basis points. And I think Patrick last year -- and that's what the figures that Patrick gave when we talked about the announcement on the disposal of Frozen Foods. And you will remember that trading last year was difficult, both in the U.K. and on the continent. And in the U.K. particularly the market declined. We have been gaining share, but it's in a situation where the market prices have been reducing, and that situation has continued.

I'll just add Ian, we've -- because -- and it also goes back to John Parker's question on the U.S., we've had again a good quarter with Frozen Foods in North America. You will remember that that was one of the key parts of the business that we wanted to keep going forward. I think it's important that you just keep that in mind when you look at our frozen Foods performance.

Yes. And second-- Thank you for that. And secondly, a couple of questions on Haircare relating to businesses that were a problem in 2004, and you allude to them doing somewhat better. Suave you've mentioned as having a relaunch and talked about Lux in Japan, perhaps you could talk us through those two Haircare markets and let us know a bit more clearly how you are doing? Are those businesses growing crucially in total U.S. Haircare and Japan and how the brands are doing within that? That would be helpful.

Yes, thanks Ian. Starting with Japan, we had a big relaunch of our flagship brand Lux in this quarter, which we've had good take-up from. We're pleased with that. It's continued to be a highly competitive market. There's been a significant launch from another one of our major competitors there, which has taken not much off us, but has certainly shifted some of the relative proportions of market shares of others. So it remains what is, in a nutshell, fiercely competitive. We've had a successful relaunch and we're looking to see the progress of that relaunch as we go forward.

Turning to the U.S., and I think we commented on this in our announcement, we are continuing with the steps to strengthen the Haircare portfolio just by the way as we've done if you go back in history with our Personal Wash Skin Cleansing portfolio, and more latterly our Deodorants category, i.e. building around strong brands that really differentiate themselves and get great success.

So coming to the U.S. position, we continue to put a lot of support and activity behind Suave, and that's in the market at the moment. You're seeing some of the benefits of that. Dove is a very important hair brand for us. We continue to nurture that. It's our flagship brand of course in many other categories. So that is the second one.

You will have seen that we made a small announcement very recently of some of the tail brands in hair that we thought didn't fit in with our longer-term portfolio.

And as John has indicated in his speech the big news is that another of our flagship brands, Sunsilk, will be entering the market very soon. So we're making good progress with strengthening our hair portfolio, structurally and strategically, therefore, in the U.S.

Did Suave grow like-for-like sales in the quarter?

Ian, I don't have those numbers in detail with me, so bear with us a second if we find it then John will comment on it.

Thank you. And in Japan, did you gain share or did you hold share?

A consequence of the relaunch was to gain share and absolutely right.

Okay. Thanks very much.

But again, it's early days on that relaunch and we're -- we know that the battle in Haircare in Japan is an ongoing one.

Yes.

We'll get you the Suave figures -- they're -- I haven't got them yet. I'll come back to you on that Ian.

Thank you very much.

Thanks Ian.

Thank you very much. And we now move to our next question, which comes from Graham Jones of Panmure Gordon.

Good morning, gentlemen.

Good morning, Graham.

Good morning. A question on Asia, Africa. If my calculation is right, underlying margins in Q1 fell from 12.5% to 10.9%. I appreciate that your comment about marketing spending. I just wondered whether that was anything more than just normal lumpiness of phasing that we get on a quarter-by-quarter basis?

But also, pricing seems to have weakened in Q1. I think in the second half of last year your pricing was running at about 2%, and now that seems to have fallen back to 1%. Have you had to put through any sort of price cuts in that region in order to sustain the growth?

Right. Thanks, Graham. Let me take the last comment straight up. No, there's no price changes of any material significance in any of our markets in Asia or Africa. Obviously, we watch very carefully the competitiveness of our offerings all the time but there's nothing strategic. So that's not the factor.

We have, as you've again seen, strong growth, volume growth in all of our markets in Asia which is very encouraging. It's a maintenance of the momentum that we have. And we've invested of course behind that to continue to support that growth. You see strong double-digit growth in a number of the markets out there, very strong growth in China, strong growth in India, strong growth in Indonesia and so on. And that's behind both growing with the market and, of course, innovation. And that of course is also reflected therefore in our operating margin.

Okay, but in terms of -- if we look at H1 last year, pricing was a little bit less than 1%, I think. And H2 '05, pricing was I think at 2%, and I would have thought that that would go through to H1 this year?

Graham, the one thing that's slightly different is that there were some adjustments in India which I think affected the first quarter, which had to do with tax and things and that could have possibly been in there. But basically the momentum on pricing in Asia is definitely stronger in the first quarter of this year than it was for this time last year underlying, your question.

Okay, and just moving on to your comment from Americas, you talked -- I was wondering if you could just flesh out two things. You talked about the slow-down in market growth base in Brazil and Mexico. And you also talked about increased price competition in Foods. Do you think you can just flesh out those comments a bit?

Yes. You remember maybe last year we said that our growth in Latin America in the second half was a little slower than in the first half of last year. Nevertheless we've still had good growth this quarter. Within that mix, Mexico certainly was a little bit slower and Brazil was a little bit slower. We don't see anything structural in that impact.

In terms of the price competitiveness in Foods, yes, we've had plenty of activity. We sit in a number of contested categories, particularly in Brazil. But overall we've made good progress. And just to pick the two markets that just happen to stick in my mind, both Brazil and Mexico. Again, Ice-cream you will have seen has performed well in the quarter worldwide, less so in Western Europe, and we have good Ice-cream businesses in Brazil and Mexico.

Okay. And finally, if I may, you commented about the cash flow being [diverted into Q1] [inaudible] low period, but I guess cash flow was a concern in 2005. And I know that cash flow from operating activities was down 30%, Q1 on Q1. It's difficult to see in the statement what was driving that. Is there anything that we should be looking at there?

No, there's nothing that really worries me about the cash flow in Q1. This is a very modest quarter in terms of cash delivery. It's where we build up our seasonal stocks for ice-cream in Europe, so that has a significant outflow. And then other categories have also responded to that, many of our more summery products and if you go back over the years you'll find this quarter was always a low one in terms of cash delivery, and it's mirrored by high quarters of cash delivery in Q3 and Q4. You're right that our cash flow was a little bit below the same period last year, slightly higher investment in stocks and slightly higher investment in debtors. Nothing that causes us undue concern.

Okay. Great. Thanks, Rudy.

If I can just come back on the Suave question. I think consumer sales in the first quarter were up about 3%, with a stable market share. And sales out were slightly lower growing about 1%, but that reflects also some of the de-stocking.

Thank you. Okay, we now go to our next question, which comes from John McMillan of Prudential Equity Group.

Good morning.

Morning, John.

Just two questions. One, and I want to make sure I understand this. At the -- you targeted 2% to 4% sales, I guess a year or so ago, when [inaudible] started, and then you revised that sales growth up to the high end or higher than that four range, with the hope of not only stabilizing the market share but gaining market share. Is that an accurate statement to start off?

Yes, absolutely. That our first task was to get us to grow as a minimum in line with the market, which we've scaled at somewhere between 2% and 4%, that sort of bandwidth. Exactly right John. And second, we said, in order to improve our performance over time, and particularly to achieve our goal of top third TSR, which is what we have in our 2010 model, that we've had, that we have selectively to gain market share in those categories where we have strength to win in a sustained way. So that's exactly right.

Yes, and then I think the response -- and I don't want to exaggerate, but people think I’m paranoid -- what it would cost to gain market share, which it doesn't appear like you did in this quarter. You're basically talking about a stable market share rate. So when you say you're on track to deliver 2006 results, you're talking about a top line number more in the 4+ range. Is that right?

No, we've not put any number out, in terms of sales growth for the year. What we've said is that we want to sustain the growth momentum that we achieved last year and improve operating margins. This is all about the strategy of first recovering volume growth and then price contribution within maintaining growth in line with our markets. And then secondly as we get -- as we get better, as our capability strengthens and as our prioritization begins to work, selectively getting market share gains in those areas where we get the greatest leverage. But for this year, the target is to sustain the growth momentum and to improve operating margins.

Okay. And just the tax rate issue. Because clearly it's the reason for the big dip on the EPS line. Rudy it was just a few months ago when you reported the quarter that you targeted us to a 29/30 rate, and correct me if I’m wrong. This is a reasonably big drop. Can you just give us more color, it is just lower U.S. earnings? Can you just give us a little more than just mix of country for the reason for the drop?

There are two main ones John, and thank you for the question. We did say at the beginning of this year, and I’m certain we used that at Cagney that our guidance for this year was 28, and we are coming in below that. We had a low first quarter last year, I should stress, which was primarily one-offs, and also some structural things. And we’ve got this year less reliance on one offs and more a contribution from structural factors. As we’ve said I think in the announcement, some of it’s to do with the mix or profits around the world, and obviously shifts from time to time. But some of it reflects of course that our investment and profitability are targeted in particular categories and they also have impact on particular markets.

The second is you’ll be aware of a number of initiatives that we have taken and continue to take, to improve our ability to structure our operations around the opportunities that are offered to us in the many markets in which we compete. And John has touched on a number of the activities in the area of cost saving that support that. All of those give us some confidence that the structural tax rate, we’re able also to continue to improve and we work on that, just as I said at Cagney’s, all the elements of the value creation ladder, and sometimes we get significant impact, and this year we’ve got a little bit of a benefit from the tax line. And as I said, we believe that this will help us to operate with a lower tax rate for this year.

Just my last question. Are the Food numbers in line with your expectations on top line?

You mean the overall Food numbers, John? Again our benchmark is the market growth in the categories in which we operate, weighted by our position around the world. And our share position as we’ve indicated, is broadly stable and therefore is the minimum we’re growing, therefore in line with the market. As I’ve tried to give through this call, and John gave many examples in the speech beforehand, there are a number of areas where we’re very comfortable indeed with the progress of Food, and a number of areas where we’ve also got more to do. That I think is the best way of seeing it.

Okay. Thanks.

Thanks, John.

Thank you very much. And our next question comes from Andrew Wood of Bernstein.

Morning, Andrew.

Morning, Bernstein not Bear Stearns. A couple of questions. Firstly, I’m intrigued by your comments that you’ve restated a couple of times, that you’re holding your market share, both globally and also specifically in Europe. Most of your Food and HPC peers have enjoyed quite robust growth in the first quarter. And I just checked in Europe you had Nestle growing at 3%, you had L’Oreal growing at 4%, you had Danone growing at 4%, you had [inaudible] growing 5, and you’ve reported -0.5%, which suggests that you’re losing share and losing it big time. Now obviously you’re not competing in 100% the same categories, and one can reasonably argue the categories in which you are operating are structurally lower growth categories, but nevertheless there’s a big gap here that I’d like you to explain if you can.

And secondly, with one quarter of 2006 under our belts, I wanted to re-ask the question I asked at the full year reporting, which was derived from the second half of 2005 being so strong with A&P spends rising the top line up to over 5%. And the question was what happens when A&P spend comes back down to earth. Are we in for another boom/bust cycle, what’s different this time versus last time? Now in the first quarter you’ve had a reasonable A&P spend increases up 30 basis points. And your growth rate has fallen from over 5 to below 3 on a total company basis, which makes me a little bit worried that we are in a bit of a boom/bust cycle here. And the question really is, what’s going to happen as to 2006 progresses, particularly as you come up against the really tough [comp] in Q3 and Q4? Thanks.

Thanks Andrew. Let me take the last -– the second question first immediately, because you will no doubt recollect that when you put that question to Patrick, he gave straight away the response which was two fold. Firstly that he looked at the year as a 3% year, and we’re investing in supporting our products against that backdrop. And our target this year is to sustain that momentum so it should be no surprise to you that our level of A&P is consistent with the opportunities that we see in the market place to support that level of growth.

So from boom and bust absolutely no reality. The second point that he made was that we’re investing most of our increase in spend in long term investment in brand building, and therefore, these inevitably impact over a longer period of time and that’s what you should be looking for as you judge the performance and as we reveal it quarter by quarter, as we go through. So we’re very comfortable with the development of our marketing plans, and the implementation of our strategy, as we are going also through this first quarter, building on what we achieved last year, building on the success in our D&E markets, building on the performance improvement in Personal Care, which is again being sustained this quarter, and on the success of our Vitality initiative.

If I turn then to the market share. Market share, as we’ve said in our announcement they’re in aggregate broadly in line with last year, stable. We’ve seen obviously within that some ups and some downs, depending on which part of the world and which category and so on, and you would expect to see that. What I think you should take out of it is that we’ve not seen any major movement in any direction, we’re broadly stable and we’re investing and growing at a level which reflects that. The 3% that we’re growing at is around the level of market growth that we have weighted by our position around the world. And clearly if you go into individual categories you’ll find some plusses and you’ll find some minuses, whether that’s in Europe and/or North America.

And the last point I’d make is obviously one person’s share gain is not automatically another person’s share loss. The nature of categories is that the level of share held by the major players is often less than half the total market and therefore much comes from other areas as well.

Okay. If I could just have a couple of follow ups. Are you therefore saying that you don’t perceive a slow down in momentum in the business from where you were in the fourth quarter which saw growth above 5%. And the second follow up is, your growth levels are on a total company basis significantly below most of your Food and HPC peers in the first quarter. So again are you just basically admitting that this is a function of the [inaudible] really lower growth categories in which you operate, if indeed you are maintaining your share as you suggest?

I’m confirming that we grew in Q1 at 3%, around 3% which is in line with the growth rate that we achieved on average all through last year, and therefore set the [inaudible] of growth momentum, and was in line with the market growth in the course of last year. That’s the first point.

And the second point in terms of our growth compared to our competitors, I don’t know the details of their growth in individual categories in which they operate, but I would leave you with our growth in Personal Care, since you mentioned a number of our Personal Care competitors, I guess by implication, was nearly 6%. That seems to be me, looking at the data I have of our competitors, to be very acceptable and in the range. If I look at some of our other categories I see similar data.

Okay, I’ll leave it there. Thanks very much.

Thank you Andrew.

Thank you very much indeed. Okay we now move to our next question which comes from Tim Potter of Goldman Sachs.

Good morning.

Good morning Tim.

The question on the discontinued operations, the operating profit in Q1 from Europe, is that all the frozen Food business and its operation, or does it include any other items in there?

I’ll take one Tim, I think first of all last year remember that the discontinued operations in the first quarter includes a contribution from the UCI business. And in this year there is a small contribution also from other businesses but the majority is indeed the discontinued operations.

Okay. Thanks. And a follow up question also relating to A&P, if I may press a bit further. You mention in the statement there is a strong innovation program for ’06 and I just wondered whether you can give us any guidance what that might mean for the A&P ratio for ’06?

I’ll reiterate the comment that Patrick made at the beginning of the year, that we will continue to support all our brands competitively in the market place, in the light of whatever’s required by the competitive situation at the time when that arises. I think you’ve seen the performance, through last year you’ve seen what we’ve done this year, and you can rest assured that we will support, what looks for us, some really great innovations as we go through this year, appropriate to the opportunity that we see.

Okay. Therefore was the rate of innovation in Q1 relatively low compared with an annual average?

I’m not going to get into -– I think it’s very hard to measure with that sort of precision, I would just say we’ve got a good program for this year and we see a lot of it coming in the next couple of quarters.

Okay. Thanks very much.

Thanks Tim.

Thank you very much. Okay, we now move to our next question which comes from Sandy Soames with Cazenove.

Yes. Hello. Good morning.

Morning Sandy.

You’ve discontinued now the European frozen Food business, and clearly you expect to achieve a satisfactory sale, I just wondered whether you’re prepared to make any commentary on the use of the proceeds now you’ve moved into that process. Because really once you sell this business for a reasonable estimate of its valuation, your net debt to EBITA will be well below 1.5 and your EBIT cover will be over 11 times, which feels like a loose capital structure.

No comment as yet on what we will do with the proceeds of something that’s not yet happened Sandy. We never count our chickens before they’ve hatched to use that old one. We’ll come back when we’ve done the transaction. And just for clarity of course, it’s only part of our frozen Foods business in Western Europe.

No understood.

The important part that we’re retaining in Italy and we have a significant presence now building in North America.

Understood. But given the changes to your capital structure, surely you would have to accept that the balance of risk on this buyback must be on the upside? Leaving is Nestle out of the argument that is quite a loose capital structure is it not?

I’ve really nothing to add to what we’ve said at the beginning of the year Sandy, when we talked about the dividend intentions for 2006.

Indeed.

The share buyback and the statement that we made about possibly reviewing the development of that in the light of further developments in the course of the year.

Indeed. Thank you. Could I just switch to Europe where, the trading conditions bumping along the bottom in a sense, it does look as if you’ve had to cut your prices a bit further, I just wondered if you could make comment on which countries or categories that is occurring in. Because I got the impression at the full year that you’d hoped you’d seen the worst of this process.

I’m quite encouraged actually by the volume and price development in Europe in the first quarter. We still have of course some price cuts in the comparison, which comes back from the pricing decisions that we took last year. But if I look -- so that automatically feeds into the numbers. And if I therefore look at the development of the business, I’m rather more encouraged by the mix of price and the emerging signs of an improvement in the performance of both our Foods and our Home and Personal Care business.

The one as I’ve flagged where we have had a slow start in the quarter is our ice cream business.

Yes, indeed.

Central Europe has again performed very well indeed for us.

Yes. Okay. Thank you.

Thank you.

Thank you very much indeed. Okay, we now have a question from Martin Dolan of Execution.

Yes. Thanks. Morning everybody.

Good morning Martin.

Just wondering how, if you’re maintaining market share in your categories, and you’re growing in line with your categories, but yet you’re still growing much slower than your peer group. How do you actually hope to achieve top third TSR?

I commented on the growth in Personal Care where a number of peers are of course operating, and our growth would appear to be comparative to them. You need to look at the whole of the portfolio. We’ve set out our ambition for growth in the categories in which we compete. There’s no single competitor that operates by the way in all of those categories in parallel. Most of them -– our two biggest competitors operate in about somewhere between 25% and a third of our business and likewise. We, I’ve set out before, our ambitions for longer term growth to grow in line with the market growth of our categories, as a minimum. And to do better than that in order to get into top third TSR. And I outlined a little earlier on the call, in response to John McMillan’s question, the framework and the data we’re using to define that performance.

Okay. Thank you.

Thanks Martin.

Thank you very much indeed. Okay, we now go to our next question which is from David Lang of Investec.

Good morning.

Good morning David.

I’m just wondering if the lion’s share of the One Unilever savings are coming through in Europe, first of all. And then it would appear that you’re running some way below the €1b 2005/7 cruise altitude, I was wondering when you’re going to get to quarterly savings of say €100m a quarter?

Thanks David. [inaudible] pick up the details [inaudible].

I think David just to say, I think we are, as we said in the call, we’re comforted by the progress we’re making on the savings program. We saved 180 basis points in the quarter, around half of that coming from the ongoing buying savings, and the majority of the rest from One Unilever savings. And we see our way to meeting the €700m that we said we would exit 2006 at the running rate, and indeed from there we want to go on to the €1b that Patrick laid out last quarter. So we’re very much on program for that, and we’re encouraged by what we’re seeing in that way. So I’d say at the moment we’re absolutely on track to meet the €700m by the end of this year, and we want to be at the €1b that you call cruising altitude by the end of next.

So we’re moving up towards it.

Which I think what we’ve always said, you know that the going rate always is at the end of that period so we exit 2006 and we go into 2007 with the savings programs, and we get the benefit of that into our 2007 operating margins. And as you know we’re not adding these things cumulatively, it’s running rate at the end compared to running rate at the beginning.

Right thanks. And as far as Europe’s concerned, presumably that’s where most of the work is being done, unfortunately it seems to be the biggest area, is that where the bulk of the savings are?

We’ve always said that Europe will be a bigger part of the total, it is the bigger part of our business, but it’s also the bigger part of the total of the savings, and that’s still the case.

Thanks.

Okay, thanks David. I think, with an eye to the clock, we need to wrap up now. I’m conscious there may be a couple of people who still want to come with a question or a subsidiary question but let me just remind you, that as always, the IR team stand ready, willing and able to respond to any of the questions you may have directly and you know your numbers to them.

Thank you very much for your time and interest this morning. I hope we’ve succeeded in conveying to you our confidence with our current position, and the progress that we’re making with this year’s plan. And thank you very much for your time. Bye.

Thank you. This conference has been recorded. Details of the replay number and access code can be found on Unilever’s website. An audio archive web cast will also be available on Unilever’s website www.unilever.com.