聯合利華 (UL) 2006 Q2 法說會逐字稿

Welcome to Unilever's 2006 second quarter results conference call. This conference will begin with a presentation by Mr. Patrick Cescau, Chief Executive Officer, followed by Mr. Rudy Markham, Chief Finance Officer, concluding with a question and answer session hosted by Mr. John Rothenberg, Senior Vice President Investor Relations.

[OPERATOR INSTRUCTIONS].

We will now hand you over to Mr. Cescau.

I can go? Okay, well, good morning, good morning to everyone who is today here and to everyone listening in to this, Unilever's half year results presentation. I'm joined here by Rudy Markham, our CFO, and John Rothenberg, Head of Investor Relations.

As usual, I draw your attention to the disclaimer relating to forward-looking statements and non-GAAP measures. This disclaimer is included here and will be posted with the text of this presentation on Unilever's website. We will keep this presentation short to leave sufficient time for your questions.

In early 2005 we were faced with an urgent need to restore Unilever's competitiveness. Our growth performance had stalled in 2004. Our market shares were in decline and we had missed our earnings guidance. Hence, restoring our market competitiveness had to be our number one priority, and we set about this by building on our existing strengths, in Personal Care, in developing and emerging markets and in Vitality; second by reigniting growth with a step-up in marketing investment, and by changing our organization to improve our execution.

By the end of 2005 significant progress had been made, but the task was incomplete. Significant parts of our business were still not fully competitive, most notably in Europe. As we move now in the second half of 2006, I'm satisfied that this immediate priority which is to restore our market competitiveness has now been largely achieved.

Restoring competitiveness has required a step-up in investment, in pricing; in product quality; in innovation; in advertising and promotions and also in building capabilities and in restructuring.

In 2005, we had to invest ahead of our ability to fund. In 2006, we are facing a cost headwind that is stronger than we expected. In the first half, pricing, higher volume, improved business mix and savings have been largely cancelled out by cost inflation, leaving little to finance additional marketing spend.

However, you will have seen from this morning's announcement that this tougher than expected cost environment is not deflecting us from our growth plans and furthermore, we remain confident that we will deliver an operating margin in excess of 13.4% in 2006 and that we have a sound base for sustainable margin improvement going forward and Rudy will say more about this in a minute.

Generating returns for our shareholders that are not middle of the pack but top of the class remains our long term aim. The next phase of our strategy is therefore focused on driving performance to the next level, which is to grow ahead of our markets, hand in hand with sustainable margin expansion.

But before looking too far ahead, let me first return to our business results in the first half of 2006, and why these indicate to me that we have largely restored our competitiveness.

Our underlying growth -- sales growth that is, was 3.9% in Q2 and 3.4% in the first half. This was in line with the estimated growth in our markets, as borne out by our market shares which, in aggregate, have been stable over recent quarters.

Consumer demand across the world is more or less where we expected it to be. We have seen some signs of an upturn in demand in Western Europe, but market growth at around 1% in the first half remains below historical norms. D&E growth remains generally buoyant, albeit that we have seen a slowdown in demand in some Latin American countries and markets.

Our growth is broad-based. In the second quarter, and for the first time for many quarters, all our major categories and all our regions and sub-regions delivered organic growth, and this included good performances from parts of the business that had previously been a drag on Unilever's top line such as Slim*Fast and Household Care.

Equally encouraging has been the quality of that growth. Price growth has been increasing without loss of the solid volume momentum built in 2005. Also, the areas we earmarked for particular focus and investment in 2006 have delivered strong performances in the first half. Personal Care grew by 6% in the first half and 7% for the quarter, and again growth was broad-based both across categories and across regions. Personal Care in Europe, for example grew by more than 3% in the first half, and accelerated in the second quarter .

High quality innovation, of course, is the key driver of this growth, and take for example the success of Dove Summer Glow. Self-tanning products have not always had the best of reputations with consumers, but here we have combined a technically outstanding product with a brand trusted by our target audience and as a result, we have not only generated impressive growth for Dove in Europe and North America, but also have helped to grow the Hand and Body segment.

Great brand building is another key driver of success. We have targeted the male segment of the Deo market with a campaign for Rexona for Men around the excitement of football in the World Cup, and this has included not only conventional TV advertising, but a more extensive 360 degree approach to our brand communication, including a series of sponsored Fans United TV programming and this has propelled Rexona to double-digit growth in the first half year and more than compensates, believe me, for somewhat disappointment that they otherwise would have felt about the outcome of the World Cup!

We continue to strengthen our Personal Care portfolio. In the US, we have built up our Suave and Dove hair care ranges in preparation for the launch of Sunsilk, which hit the shelves in July with a $200 million investment program in its first year. At the same time, we have taken the opportunity to dispose of minor brands such as Finesse and Aquanet.

Growth in D&E was also strong and in line with our expectations at just under 8% in the first half. Growth was particularly strong across Asia, driven both by our traditional strongholds such as India and Indonesia, as well as our newer businesses like China and Vietnam, and China is a prime example of our focus on high growth spaces generating growth ahead of a strong and growing market. In fact, 30% underlying sales growth in the first half of 2006.

We are still underweight in China, our business is only one third the size of that in India, but thanks to high quality innovation and better distribution, Unilever's share of wallet in this huge consumer market is growing fast.

Our Vitality mission is shaping the thrust of our innovation and investment priorities across the whole of our business. I could quote you numerous examples. AdeZ, which is a soya based fruit drink which combines the goodness of soya, rich in calcium and protein, and also with the refreshment, the taste and vitamin C from fruit juice. And all that with a one third less calories than a regular fruit juice.

AdeZ has been growing at more than 30% per annum in Latin America over the past few years, boosted by a continuous pipeline of new products and flavors. We are now bringing the concept to Europe with the recent introduction of three flavors of AdeZ drinks in the UK. It's early days, but already an exciting opportunity -- an exciting example of how Vitality is guiding us towards new growth opportunities.

In India, under the banner Vitality, our Lifebuoy Health Awakening program has been driving consistent double-digit growth for the brand. And its five year campaign aims to help educate 200 million people, that is 20% of the population about basic hygiene habits, including, of course, washing hands with soap, and that we do in partnership with health organizations, government agencies and community leaders, and so far, we've reached 70 million people in over 18,000 villages which is a significant achievement but of course with much more to come.

Last example, North America, where we are using our processing and formulation technology to bring to consumers new and exciting products such as Breyers Light Double Churned novelties that offer the creamy mouth-feel of regular ice cream but with significantly less fat, and also Popsicle Fruity Shots with improved quality and more intense fruit flavors. The outstanding success of these vitality innovations is reflected in the continuing strong performance of our US Ice Cream business, combining market share gain with good profitability.

The first half also saw us restore growth in Europe, another of our priorities for the year. The last six quarters have now seen a steadily improving sales trend in Europe, resulting in 1% underlying sales growth in Q2. And those of you who attended our investor event in Poland would have seen examples of the principal drivers of this improving performance. The strengthened innovation program has certainly been a factor and much of the effort has been focused on the rejuvenation of core brands; our Cif and Domestos brands are back to growth in Europe, driven by innovation like Cif Power Cream sprays and Domestos 5x Bleach, both of which have improved the image of these brands with products that offer best ever performance.

We have also been innovating in new areas, with the selective introduction of new, potentially high impact products such as Knorr Vie fruit and vegetable shots and Dove Summer Glow, which I referred to earlier. Innovation has also helped us to rebalance our price value equation. In some cases, we have reduced prices to achieve this, in others, we have improved product quality for the same price. But in many cases, playing the price piano more effectively has led us to expand the range of products we offer to cover different price points. For example in France, we have introduced a range of Secrets de Grand-Mere; for those who don't speak French, it would translate like Grandmother recipes, soups, under the Knorr brand at a substantially lower price than our premium range.

But great innovations have to be fully exploited and during this year, we will completely revitalize our range of Knorr bouillons. The quality of existing products is being substantially upgraded in terms of ingredients, appearance and flavor, and new products which appeal to consumer's interest in Vitality are being introduced, including organic bouillons, olive oil and sea salt herb mixes. And within six months, this program will have touched every one of our Western European markets.

Improvement in Europe is also about better execution, especially in customer management. The Netherlands was one of the first of our European businesses to fully adopt the One Unilever model, and the first to fully embrace our more disciplined approach to customer management. And it is good to note therefore that the Netherlands is comfortably our fastest growing Western European market in the first half of 2006. We are now of course extending our customer management improvement program across Europe, with France and Germany at the head of the queue.

The scale of the transformation that we are undertaking in Europe is very significant, but I can now say with some confidence that these changes are strengthening the business and that they can be executed in parallel with more competitive performance in the marketplace.

I am now going to hand over to Rudy who will take you through the details of our financial performance.

Thank you Patrick. I would like to start by commenting on a few additional features of our top line.

Turnover grew by 5.8% in the first half and 3.3% in Q2. Disposals reduced turnover growth by just under 1% in both the quarter and the year. The impact of exchange rates slowed sharply from 6.3% in Q1 to 0.4% in Q2. Our European frozen food businesses, currently held for disposal, are not included in reported turnover. These performed satisfactorily in the first half. The disposal process is proceeding to plan and we remain on track for completion by the year end.

At the half year, our operating margin is 14.4%, around 1% ahead of the half year figure in 2005. However, the shape of our margin development both this year and last is affected by the phasing of restructuring disposals, and especially the Slim*Fast impairment charge taken in Q2 2005. Before these items, the underlying change in operating margin was 60 basis points below in the first half and 100 basis points down in Q2.

So what have been the key drivers of our margin development in the first half? First, A&P. We increased this by 50 basis points with the incremental investment focused on priority initiatives in Skin, Deodorants, Savory and Heart Health, and in priority markets. A&P was up in all three regions, especially in Asia.

Second, a substantial contribution from our savings programs, which in aggregate have yielded EUR400 million in the first half.

Third, a significant headwind from input cost inflation that has more than offset the combined benefits of price increases, volume growth and better mix.

And, finally, there was a one-off difference in overheads in Q2 caused by 50 million profit on a property sale taken last year.

The commodity cost environment is certainly more challenging than we expected at the beginning of the year. Apart from the mineral oil price that has drifted up through the year to over $70 per barrel, we've seen increases in a number of other key commodities, including edible oils and tea. The impact of internationally traded commodities on our business has been exacerbated by the strengthening of the US dollar against the euro, and the recent weakening of certain D&E currencies such as the Turkish lira and the South African rand. This harsher cost environment reduces our margin headroom in 2006, leaving our gross margin flat both in Q2 and at the half year, but we remain confident that our full year operating margin will exceed the 13.4% delivered in 2005.

What are the reasons for this confidence? First, we are increasing prices. Price growth has been accelerating over the past three quarters and, in light of the increased cost pressures, we're pushing harder for increases where we can.

Second, we're accelerating our savings programs. We're now planning restructuring of over 100 basis points in 2006 to support this and we expect to comfortably exceed the 700 million of savings we generated in 2005.

Third, we have a softer operating margin comparator in the fourth quarter, largely reflecting the phasing of our innovation and market development activities, which were more weighted to Q2 and Q3 this year than last. This includes a substantial investment behind the launch of Sunsilk in North America.

Turning to other aspects of our financial performance, there have also been some important improvements to earnings below operating profit. These include an increase in net profit from joint ventures and associates, most notably the excellent performance of the Pepsi Lipton Partnership. Sales of Lipton ready to drink tea have risen by over a third in North America so far this year. Unfortunately, being a joint venture, this is not reflected in our sales growth. We also benefited from substantially lower financing costs driven by lower net debt and higher pension asset values. And our first half tax rate of 25% leaves us well placed to repeat the 26% full year rate that we saw in 2005.

Unilever continues to generate strong cash flow. Net cash flow from operating activities was 1.5 billion in the first half, up slightly on 2005. This included lower tax payments that more than offset a larger seasonal outflow from working capital. Structurally, our working capital efficiency remains very competitive. Net debt, at 10.3 billion, is 1.2 billion lower than this time last year. 0.4 billion of this improvement is due to favorable currency movements, but this is also after healthy dividends and a 0.5 billion share buyback in the second half of 2005. As we said back in February, we plan for a further share buyback of around 500 million in 2006. We may review this in the light of any bolt-on acquisitions, disposal proceeds and the development of our credit metrics.

Patrick, back to you.

Thank you Rudy. As I said earlier, I am now satisfied that we have largely completed the first phase of our strategy and that is to restore our competitiveness in the market. And the evidence for that I think now is clear. We've grown the business for six consecutive quarters, and specifically within this we have seen significant progress on our immediate growth priorities, building on our strengths in Personal Care, in D&E markets and Vitality and returning our business in Europe to growth.

in customer management for example, where we are introducing common approaches and disciplines across Unilever, and where we are developing some genuinely leading edge capabilities our shopping insight work in Europe and North America, for instance. But also in brand development and marketing, where again the story is one of leading-edge developments and this is particularly true of the way we are using our 360 degree communications to reach consumers in a host of new and exciting ways. And one of the reasons, perhaps, why Unilever walked off with no fewer than 37 of the coveted Lions for creative excellence at last month's Cannes Advertising Festival, and that is more than three times the number of our next leading competitor.

Ladies and gentlemen, all of this is helping to infuse Unilever with a much greater sense of self-belief and purpose, and there is now a clarity to our strategy and a sharpness to our delivery that wasn't there two years ago, and that is helping to energise the whole business and it's giving us, I could say, vitality.

And we're now looking at the future, not over our shoulder. And we are doing so with a real sense of confidence and I am happy to reflect some of that confidence to you this morning.

Now our task now is to build on our strengths and the positive changes we have made and to move to the next stage of our strategy and that is unlocking Unilever's potential for market-beating performance, and the key here will be the clear-sighted and skilful management and development of our portfolio strategy. That is about driving global leadership positions in key markets, and that is about investing to build strength in high growth spaces.

We can do this organically. We are confident of that. But equally, we make no secret of the fact that where M&A activity will help us to accelerate our strategy, both in strengthening existing leadership positions and in entering new high growth spaces, we'll actively seek out those opportunities and that is what we mean by building a winning portfolio.

It is why we feel able to say today that we expect to grow ahead of our markets with long term underlying sales growth of 3 to 5%, and that we will do so while delivering sustainable margin expansion, leading to an operating margin in excess of 15% by 2010. We need to do this if we are to deliver top third returns for our shareholders. And, for the reasons Rudy and I have spelled out today, we are confident that we are firmly on track to do so.

Thank you very much. I will now hand you over to John, who will explain how we will take your questions.

Thank you Patrick. We now take the questions as follows.

[OPERATOR INSTRUCTIONS]

Okay, let's start with some questions from the hall and then I'll take some from the air and then we'll switch backwards and forwards. Michael would you like to start off?

Good morning, it's Michael Steib from Morgan Stanley. I have two questions please, the first Patrick a follow up to your comment, you said that Europe has been restored to growth. In the first half Europe has been pretty much flat in terms of its organic sales growth, there was certainly an acceleration between Q1 and Q2, but is this the level of growth that you're comfortable with for Europe going forward to achieve your objective? That will be my first question. And then secondly. You mentioned that the Group will be taking a higher restructuring charge this year, and my question is, is this related just to this year or are you sort of guiding us to more than 100 basis points of sales of the restructuring charge going forward? And could you quantify that charge for this year please?

Let me take the second question first. We continue to stay for the future and that is also true about the 15% margin in 2010, within the range of 50 to 100. This year we believe that we have an opportunity to accelerate restructuring and increase the amount of money spent over the 100 basis points that we normally set as a range. We see the opportunity for further restructuring, not massive restructuring, but good restructuring and we said it.

The first question, am I satisfied with 1% growth in Europe? No of course not, because it's just like a car coming out of the pit, with the fuel that we need to continue to accelerate and that -- and while I've said I'm satisfied that the competitiveness of the business has been largely restored, I am not satisfied that we cannot do better in Europe, so to your question I want more growth in Europe.

May I could add two more quick points to that, one is our market growth in Europe currently around 1%, so we're growing in line with it, secondly remember all of our growth at the moment is volume and bear in mind the comments that we've made about pricing and the development of price [inaudible].

John.

Yes good morning, John Parker, Deutsche Bank. I would like to just press you a little bit on the restoring competitiveness issue, the last 18 months of restoring competitiveness has been, as you say, characterized by accelerating sales growth but also by underlying margins declining as you put more money behind A&P and being very restrained on pricing. You seemed this morning to declare that the phase is over, the restoration of competitiveness, it seems to me a logical consequence of that sitting at this side of the table to think that in future you will be able to sustain the sort of sales growth that you've been achieving at least, but with no longer seeing that decline in underlying margins. You've obviously said reported margins are going to go up this year, but am I missing something in this interpretation where I would conclude that we should now expect underlying margins to begin to trend upwards through the second half of this year and beyond?

What I've said 3 to 5,000 [inaudible] suggests that we feel confident to grow ahead of our market and this is why this guidance is here, so to your first point, to feel confident to sustain and hope improve on our current performance certainly.

For the second part of your question, we said two things; we don't comment on so called underlying margins, your [guidance] for years suggested that before this, after that is the real thing that you want. What we've done in 2006 is put certain points for, which is not a guidance, I accept that, either what I said also is that going forward we believe that by 2010 we can reach margins which if you take the [50 to 1 business], but indeed would show improvement excluding this, excluding that. I have not said whether it's going to happen precisely this quarter, this other quarter, but certainly what I'm [inaudible] to you is that we believe that our business model is stabilizing and this is why we feel more confident to put clear numbers for 2010, so you're not missing something, just humming where, of course, you probably would want more information than I'm willing to give at this stage.

Ian?

I'll take the statutory two questions as well, if I may. First of all --

Introduce yourself, Ian.

Sorry, it's Ian Kellett from Blue Oak Capital. In terms of price inflation, do you think that, given the raw material cost inflation that you've had, and against the backdrop of the move to competitiveness, do you feel that over the last quarter or two you've been a bit slow pushing through the price increases that you need, and indeed; looking forward, do you think that, through the course of Q3 you'll be able to get the price increases through that you need in order to be able to recover the input price inflations in my first question.

Good -- good question. First we -- we have been taking price increases, as you can see from the development of our figures, the contribution of price increase to our growth has increased without rocking the boat in terms of volume tick, and that's true for Unilever as a rule, it's also true particularly in Europe, where while still leaving some investment in pricing in this quarter, there's a decreasing impact with this way of negative pricing on the figures that we are sharing with you. In the US and in Asia, Africa, the rest of the world, we've been seeking the sort of price increase that we need, so the question is really about Europe. And yes, I feel confident that we'll be able to take more price increase. We have 20 basis point negative pricing in Europe in this quarter. One year ago it was in 1% and that reflects the progress that we have seen.

And my second question is for Rudy. Given the comments just made about margins before this, that or the other and trying to get things on a more even basis; do you think that in Q2 last year the discussion or not about the 50 basis points that we've had from the property disposal is consistent with the conversation we're having about it this quarter?

Sorry, I'm not clear I understand --

Well, what I'm trying to say is, --

-- have we discussed [properly those 50 inaudible], that's what you're saying?

Yes. I read the Q2 statement last year and I don't see any mention of the 50 basis point benefit that you had last year, and I read the Q2 statement this year, and I see discussion of the property disposal and I just find it interesting in terms of your desire to try and create more consistency.

You'll recollect we introduced at the end of Q -- of 2005 the concept of structuring disposals of businesses and impairments of assets in an effort to provide greater transparency of what was happening in things that are lumpier or more one-off in our business. That we did at the end of that year and we've maintained that transparency as we've gone through this year and we've declared also -- we declared at the time, that we had a property sale in our ordinary numbers in 2005, in the half year.

So the answer is you think it -- the discussion of it last year and this year is consistent and appropriate?

Yes, I think we do. And I hope we are being as clear as we can exactly why, because we've defined exactly what is in our ordinary -- in the numbers and what's in restructuring disposals and impairments because this was a large amount which was in the operating profit last year. We want to make sure that we've understood it.

Thank you.

Okay. Maybe we should take some from the air now, if we could have the first caller on the lines, please?

Thank you. We now have our first question which comes from Marco Gulpers of ING. Please go ahead.

Yes, good morning everybody. I have a question with respect to market shares. Maybe you can share with us the regional performers there on market shares?

Second question is on Home Care development; the sales performance was actually in line with the first quarter, however the margins saw a substantial drop. Maybe you want to clarify what is going on there?

And finally, am I deducting here that you are now ready for M&A big time?

Let me take the questions in reverse order. One, are we ready for M&A big time? We said that we would be more aggressive in some of our acquisitions, we also said in previous commentary that we would focus our efforts on acquisition that we could finance ourselves; on bolt-on acquisitions, we've not at this stage mentioned anything of [transformational] or big time acquisition. And even if I was, I think that wouldn't be the place to [discuss that], more specifically. But we have not commented anything further and I just confirm what I said in previous.

On Home Care let me just remind you of two things. The first one is we have in the Home Care, two businesses to start with. One is a so-called Home Care business; the second is a Household Care business which is the Cif, Domestos type of businesses.

First news; good news, I suppose because this is one of the businesses which has been for a long time in the so-called penalty box. We have been growing at a high single-digit in the first half year in Household Care, so tick.

The second, our Home Care business, we have also here a tale of two countries if I can put it this way. We have a very strong D&E business and there is nothing really to report on this business, we are doing a very good job and continuing to maintain [inaudible] share.

And there is a business in developing market being the US and Europe, and this is a business which is very competitive and that's only one of the areas that you can put under the largely competitive where I don't -- I'm not yet satisfied that we have turned the corner. We are making good progress, especially in the UK, but we are not there. And that is reflected in less pricing power and less performance in terms of the share than in any other part of the business. So, more work to be done in this area.

In terms of market share, I'm not going to go into detail, just a couple of sound bites; I think the market share were generally stronger in Food than in HPC. They were stronger in Personal Care than in Hair Care. They were stronger in Asia, Africa than -- especially for Home Care than they were in Europe or North America, and that's where we're going to leave it.

Thank you.

Thank you very much indeed. Okay, we now move to our next question which comes form Martin Dolan of Execution.

Yes, good morning.

Hi, Martin.

If I could just follow up on Marco's question there, on Home Care; how much longer do you give US Laundry to get back to acceptable rates of growth?

How much?

How much longer do you give US Laundry to get back to acceptable rates of growth before maybe you have to look at other strategic alternatives?

And secondly, in the catch-all where we talk about restructuring this year being higher than 100 basis points, do I take that, that that comment is the net of the line which is restructuring business disposals and impairments, or is it just gross restructuring?

Just gross restructuring, Martin. [inaudible] that's an easy one. On Home Care, again, something I don't want to do is do what we did in the past with negative impact on the business which is put businesses in penalty box and make big statements about six months, one year, two years, so I'm not going to do that with Laundry.

But fundamentally I'm indeed not satisfied with the performance. It's simply not good enough at this stage, it's very competitive and I'm driving very hard, and so is the team, to improve this performance, and we do that through a very different way and I don't want to talk about strategic options, of course, Martin, because that's not -- discussion here for the public but for the boardroom. We are improving our innovation rate, Dirt is Good has been rolled out very effectively.

We are also looking at the cost very closely and we have many programs to drive the cost down. We look at the opportunity of technology and innovation and I'm sure you will have noticed that in the US we have launched what is at this stage an unrivaled proposition within the [frequency] to the market which is for three times liquid concentrate which has been hailed by Wal*Mart as an excellent new product, and indeed we have seen that for that part of the business an improved share. So technology, innovation, cost cutting all of that, but I can assure you that I am very determined to sort out this Laundry business in developed market. Because it is indeed affecting a bit our overall performance.

Thank you.

We'll take one from the air and then we'll come back into the room.

Okay thank you. We now have a question from John McMillan from Prudential, please go ahead John.

Good morning Patrick, Rudy, John. [Inaudible] listen whether it's Avon, turnarounds are tough and I think that's evident here with you and some other companies but at the same time as you know with Heinz there's been some shareholder activism in US Food. And Patrick you specifically say you're not looking over your shoulder, does that suggest you are not worried about shareholders losing patience. and what about recent cries for spin offs, more share repurchases?

I'm going to take the first question and leave the second one to Rudy. When I say I'm not looking over my shoulder, is that there should be -- and there is no difference between what the shareholder wants and what I want which is trust, value for the shareholders' business. I want to do it my way because I believe in the way that I'm driving this business forward and the [inaudible] we are there. And when I said don't look over my shoulder doesn't mean that I'm not very, very conscious of that's what has been our performance for the past three years and that I am not absolutely focused to drive the shareholders' value of this business. No difference in [alignment]. Perhaps difference in the way we should be doing that but I can assure you that there is the same determination to extract value from this business for the shareholders. As to share buyback --

John just to pick the point, our net debt at the end of Q2 is exactly the same pretty well, a couple of hundred million lower than it was at the beginning of the year. In other words the cash inflow for the first half has largely gone out as dividend which is, as you know, our dividend it weighted two thirds to the first half of the year and one third to the second. We plan, as I said, to continue to execute our share buyback plan of 500 which we announced at the year beginning. In the course of the second half of the year we will also look as we go through the year at the other features I mentioned which is the impact of any further disposals, the impact of any bolt-on acquisitions and any change or concern that we may have in credit metrics. I don't want to add to what I've already said and we'll proceed with that plan for this year.

Don't wait too long, we need some help.

Thank you John.

Julian Hardwick from ABN Amro. A couple of questions. First can you give us any metrics in terms of innovation contribution to sales performance and how that's been evolving?

And secondly, I appreciate that you and we don't see eye to eye on the issue of what the right operating margin figure to focus on is, but given that clearly all of us out here are focused on the underlying picture, I wonder if you could give us some help by talking at least qualitatively about how you see the key moving parts in the margin equation in the second half relative to the first half in terms of costs, cost saving, price etc.?

I was so focusing on your second question that I forgot the first one.

Innovation, that's an easy one. I think we have significantly or substantially improved our innovation [funnel], if I can put it this way, in 2005, and we've maintained it at a high level in 2006. I'm not going to engage into explaining to you which is the contribution of the innovation in percentage for the past nine quarters we do but our metrics very clearly indicate that we have not [inaudible] on our innovation drive.

The only difference perhaps in approach is I think we are trying to focus more and more on bigger bang innovation and on renovation program which allow us to make a very rapid rollout throughout the region and that's what has signaled the [inaudible] bouillons for the second one. And for the first one the Dove self-tanning lotion which has been enormous success for us both sides of the Atlantic.

The last, perhaps best, example of big bang innovation is - and that perhaps is important also in terms of signal and confidence [inaudible] very long time missing, we always have [had to deliver] reacting to things, when are you going to move and make a statement [inaudible]. Well in view of what has happened with our portfolio Hair Care between three years ago and today; three years ago we had Finesse, Aquanet, we had Suave under pressure, we were about to launch Dove and Thermasilk. You take us three years later and you have now Suave which has been doing extremely well after the re-launch, Dove which is solidly installed in terms of share and continuous flow of innovation and a big launch Thermasilk in the US. And of course we wouldn't do that if we did not feel confident, you heard the size of the investment that [inaudible]. So long story.

As to the first one, I'm not going -- before just to frame what Rudy is going to say, in terms of numbers, the only number that I've given [inaudible] is the 13.4 and the growth restructuring in excess of 100. For the rest, qualitatively perhaps there are some lessons from what we did in the first quarter, perhaps Rudy wants to comment on?

Well I tried to set out I think the drivers for our confidence in the operating margin improvement with regards to the remainder of the year. I pointed to the development of pricing; I pointed to the acceleration of cost savings, prior to the mix I should add; I pointed out that some of our costs last year were back weighted therefore we have a better comparator as we go through the fourth quarter. I think those are the main qualitative drivers as we look at the performance going forward.

What about marketing?

That's included of course within this report for our innovation as Patrick has just outlined.

It was mainly the comment about other costs, the investment marketing in the middle of the year. That was the only additional information that we gave.

Arnaud, you've been waiting patiently, sorry.

Arnaud Langlois from JP Morgan. A question again on pricing. Recognizing that the 0.8% pricing effect you recorded in Q2 with the combination of pluses and minuses, could you tell us whether you think you're done with the price reductions and in which categories you've been reducing prices in the first half this year.

And I have a second question on Latin America, when I look at your numbers for the Americas which the US is up 2.5, 2.7% suggesting that the Americas could be less than 5%, that number which is slightly below what we see elsewhere in the sector from companies in the sector, could you tell us what's going on in the region?

Sure. On pricing in terms of region, I have said that we're driving prices up in Latin -- in D&E market in North America. Europe is the only place where we're not driving prices as much and of course [if we did] come back [inaudible] come back to us in a second.

Two further comments on your first, our overall margin at Food level is not as if the margin to do your underlying calculations which you only can do, will probably show that our margins, especially in Food, are good margins.

The second is as I explained earlier, as we improve our competitiveness we see the price negative really going down in the last quarter I mentioned, 20 basis points. So Europe, within Europe where we don't see the same sort of price increase.

Just one word about pricing. It is ostensibly about cost plus of course, it is also about competitiveness in the market, levels of volume promises and [inaudible]. So in terms of your specifically, you would find softer prices in Hair Care and in Home Care. You will find some readjustment in prices in Food, only in those categories where we are trying to play on the price piano. I gave you the example in soups and I think you could find some examples also in [inaudible].

So I hope I will have answered your questions. Europe it's Home Care, Hair Care and it's some of the Food categories but from a strategic perspective, not from a cost perspective and it's about ability to challenge more effectively the low end or parts of it to the [inaudible] low end of the market.

And you are happy with your price positioning as it is now?

You know the reason why I talk about competitiveness is that, to a certain extent, it's not, doesn't simply depend on our own actions. My number one priority is to remain, first to get the competitiveness and remain [competitiveness]. And so we have a certain number of things which are fixed and are viable [inaudible]. Fixed, how much money I have saved and how much more I can save, fixed that's under our control, we're driving it.

Second improving the mix and quality and innovation and we are driving more of that; that is under my control.

Third, level of competitiveness and price adjustment in the market; only partly under my control.

The point I'm making is that while I feel that we are growing more competitive in price in Europe, I cannot commit to you that we'll start to see the prices in the market going in one or the other direction that I am going to simply ignore that and I'll keep this flexibility. My primary objective to get sustainable growth and get the funding through the savings, get the funding through higher innovation, get the funding through better division of the marketplace, and also better use and management of [inaudible] capital and that's the strategy so there's no definitive answer.

Latin America, again just to frame the discussion, two thirds of the business is Home and Personal Care and by and large there is no comment on this one. It's good across the board. A bit weaker in Personal Cleansing but by and large it's [inaudible] Food and this is where I think we saw a slow down in market but also a slow down in the bit of pressure of not international competitor but low cost competitor in some of the areas.

There was one more item but I hate to talk about it because once again including this and including that. We had the system change which we signaled in the first quarter in Mexico which boosted the sale of Mexico in the first quarter and we saw a corresponding decrease in the second quarter. And our confidence for [inaudible] Food also with good price increases which certainly added a bit to the pressure. We thought that this price increase would not be at the expense of volume but to be honest they were a bit at the expense of volume in Food.

Latin America, we are confident in the position that we have a strong position and I'm not too worried by the thought, I don't think fundamental changing in the economy in Latin America, I am confident that we'll get back in Food to the level of growth we enjoyed in the beginning of the year and late last year.

Sara?

Hi it's Sara Welford from Deutsche Bank. Can I just clarify the 3 to 5% sales growth, am I reading this correctly it's the current target rather than the 2010 run rate at the exit and how firm is it? Is it relative to the market growth? In other words would we expect to see it change if you see a shift in the market growth?

We don't expect a change in the market growth, by and large probably going to stay around 2 and 4%. Our ambition was always to grow ahead of our market. We feel more confident now that we can do that and deliver the 3% market growth. So it is not a target that we review every year depending on the growth of the market. Of course, if something dramatic happens in the market we'll be very open about it but this is the ambition that we have, to drive the return of this business to the [top [inaudible] and yes we're sticking our neck a little bit out.

Sandy?

Hi it's Sandy Soames from Cazenove. Could I ask whether Easter boosted the sales trend. I think it did for one or two of your competitors in this quarter.

Secondly on the rise in A&P spend, whether you can just give us a sort of updated perspective on how you're feeling about the rate of investment and the rate of increase of investment there, you know, you have it up by 160 basis points effectively in 18 months. You're spending over EUR5 billion, are you factoring in a further significant increase in A&P within your increased sales targets or are we getting nearer to the appropriate level of spend?

I don't want to comment very specifically what we're going to do in A&P but I want to come back to what has driven us to increase A&P. Number one, some of the market, the companies game has increased and we need to catch up. Two, especially in places where we see a lot of [private trade offs], a lot of [inaudible] own brands, I think it is important to signal and to reinforce the reason to believe [inaudible] brands. Third is that we are taking a much more active management of our portfolios. What do I mean by that? Is that - if you wanted to deliver top [inaudible] we cannot achieve that by growing with our market and [limiting] our market share. We have to compete to win but not everywhere. What we have done is select those areas in the portfolio where we want to see significant market share gain. And it's no surprise that you will recognize that included under this heading are those categories, global categories like Deodorant where we believe we have company advantage, our relative market shares are very strong.

It also includes -- this is like developing an emerging market, where we do believe that we have unrivalled capabilities and presence which we term as [local roots] and we have two opportunities. The first one is to live with our best practices, institutionalize our best practices in two ways; one in defense of our existing strong position like India and Asia; second by focusing very specifically on new [opportunity], new territory like China and like Russia or Vietnam.

Also in this category, in this D&E environment there are categories of businesses where whilst not being a global leader, we believe we are [availing] of very strong business position. Hair Care or Laundry are examples. And this is the way that we are allocating the resources.

There are two other points I would like to make. The first one is that I can assure you that if something else has been changing visibly and materially in Unilever about [inaudible] promotion is one, much more focus on return on investment. Not that we didn't do it before but we do it on a much higher level, the return on marketing investment, one.

Second, leveraging our scale with global providers you see some of the agreement that we are making, be it with [ITD] with buying share for global [media] buying. So [inaudible] where we can [delivering] best practice when we can, we've got a very good [inaudible] our agreement with our agencies, we are working somewhat differently with agencies.

If you look now in the way the first six months of the year we have spent our money, you see we spend it in D&E, we spend it in Personal Care, you will not see massive investment in Europe. It is not as if we bought the [business] in Europe, far from it, because you certainly will see, in detail, some more investment in the area.

Now going forward, I'm very clear, I will put the money to gain share where I want to get share and I will use some of the business in the portfolio to sustainably deliver the cash for that. And that's what I call by more aggressive management of this portfolio. No comment on exactly what that will mean, apart from the acceleration from outside to drive selling program so that whatever impact [inaudible] will be eliminated as much as possible through a high level of productivity.

Let me just to add the answer to your other question about Easter. We have learnt not to attribute any significance to the calendar, I can assure you it's had at best a marginal impact on our numbers. We've not looked for it, so no significant impact.

[There's a new Unilever], I don't talk about Easter, I don't talk about weather and you guys talk about it so please, in your report, don't put we blame it on Easter and on weather because I don't do that, I don't even mention it.

OK, we've time for a couple more questions, Victoria.

Good morning gentlemen, it's Victoria Buxton at Lehman Brothers. I've got two questions, firstly for Patrick. I'm intrigued by your choice of 2010 in terms of the new operational target you set, I think some of the most bearish forecasts in the market have you achieving 3 to 5% organic growth and 15% operating margins before 2010. So I was just wondering in terms of your thinking are you trying to say to the market that the evolution at Unilever is perhaps slower than current forecast reflects or are you setting those targets because you are very confident that you will achieve them by that time and you're concerned about disappointing the market in the meantime?

You know, damned if you do, damned if you don't. 2 to 4 has been the last comment, lack of ambition, you [closed] the market; 3 to 5 is first step to reassess a sense of direction and ambition and obviously you don't share that view because of -- why 2010? It's not that between December 30 and January 31, everything will happen by magic, this is because currently our strategic framework, the one that we have articulated with the market currently is one of 2010. And you will have to wait until I make a strategic update, perhaps to get an even perspective. At this stage, I know that some of you may have wondered why then that in the middle of the year -- we're talking about 2010 -- the reason is simple, that's the why I feel, I see no reason not to do it and not to share with you the price on the business. The real progress is on what we have achieved rather than whether it's 2010, 3 to 5 [inaudible] December.

To add to that [inaudible] message is going to be slower [inaudible]. I think what I was I hope indicating, a sense of confidence that one the strategy is working, because we've been able to sustain the growth, not yet at the level but give us a [inaudible] but one year ago we are growing zilch. One half year ago so that's progress. The [property] we've articulated are delivering, our organization which allows me to both get global focus in HPC and in Food and I'm sure you are going to see -- or you have seen some of that together with local execution is working. And we see signs of changes in culture to our [inaudible]. That is what I wanted to share with the market. And when it was 2010 or [inaudible] ask myself the question whether to share that. Within the only existing strategic framework which we have shared at this stage. That's all. Nothing else.

Thanks, and then a very quick one for Rudy. In terms of the updated guidance on restructuring for the full year, can you just tell us where we are at the half year in terms of restructuring?

We have included in our numbers a net restructuring disposals and impairments as we've seen from our announcement, I think 80 basis points, and of that the restructuring figure is -- are we quoting that, John? The restructuring figure in our first half?

What we are looking at -- before we leave the room, I'm sure, you have the numbers, very sure, of being able to giving it to you right away. Other questions?

Tim is next.

It's Tim Potter, Goldman Sachs. I wonder if Rudy could also, while he's trying to work out that particular figure, give us some reasons behind the drivers of the operating cash flow in the second quarter which looked flat year-on-year. And what he thinks the trend might be for the balance of the year and what element of the increased overall restructuring charges may be cash?

Firstly, the bulk of our restructuring charges so far have been cash [inaudible], take that one up front. Second, in terms of cash year-on-year. our operating profit on a cash basis is broadly flat, the difference is a small outflow of working capital, we have, as you know, a seasonal outflow in the first half of the year. We have less outflow of stocks, we have more outflow of debtors because if you sell more you get more debtors and there's less stock. And we've a slight reduction in creditors, we've also had a less cash [tax]. If I look at the credit metric, if I look at the metrics by which we track working capital month by month and quarter by quarter then there is no change in our stock metric, our debtors are slightly down and our creditors I think are slightly improved year by year. With that I hope you get a feel for the working capital, let me stress the prime driver of our cash developments as we move into the second half of the year is operating profits so the cash -- the sales times the margin. And traditionally as you know, in our cash flow, it's always back-end weighted. We have this year about 25% in the first half and that is broadly in the range that we normally have.

Thank you. If I may have a follow-up? If I ask what product category last year's property profits fell in, would you answer it?

If you ask which product categories?

The property profits fell in last year, would you answer that question?

It was in North America and HBC. It was the sale of the Greenwich facility which we said at the time, and we said profits on disposal and asset sales were halved by EUR47 million in last year's figures.

Thank you.

David, I think that's got to be the last question so, David. Is there anyone on air been waiting patiently or -- we'll take one more from David and then one more from the air and then we must close.

David Lang, Investec. You were talking about the Mexican change, in Go to Market and the effect it's had on sales in that region. In the last quarter we were told in Poland that you'd completed your change in Go to Market activities in France and Germany. I was wondering if there was any distortion of the figures from the change there because presumably you're rolling out a similar model to the one which affected profits in the States at the end of '02 and has now affected Mexico?

No. I would love to be able to hide behind that but that's not true. France has been underperforming in the first half year, this is by the way one of the reasons we believe we need to improve the customer management. Even if there was price increases at the end of 2005 which flattened the numbers and gave us kind of a slow start-up in 2006, France is one place where I believe we have room for improvement.

Germany is kind of a different thing, volume has been less strong than I would have wanted but the share has been good, specifically in Knorr. There is no impact from the reorganization in France and Germany. It's all about performance so there is nothing.

OK, and if we could take the last question from the line because I know it has been waiting patiently and then we'll have to close the session.

Thank you. We have a question now from Alex Molloy of Credit Suisse. Alex, please go ahead.

Thank you. Just on the 3 to 5% target, when you imparted the growth one of the lessons you seemed to draw out of that was you had too many targets. So then you stepped away from them and now it looks like you're going back towards them. Is that the right view of things? Secondly, why did you feel now the need to raise that target when you've yet to beat the 2 to 4% target which you already have in place and that's against a backdrop of very strong growth in emerging markets?

First, just a fact. We grew last year 3.1%, right? So we did beat the 2 to 4,

That's right in the middle, isn't it? Sounds like if you're going to go 3, 2 to 4's perfect.

You can't win. Well, I thought that 2 to 4 target means that if you are in the 2 to 4 target range you should be in the range, so, perhaps made a mistake there.

Are we going back to [inaudible] growth, no we're not. First of all [inaudible] growth, just to be clear, we had a target on top line, we had a target on margins, we had a target on capital employed, on restructuring, on savings. We had a target, I'm sure, on global buying and so on and so forth. And that is what, at the end, gave us the difficulty, the straitjacket, that at the end of the day meant that we did react a bit late when the competitive environment and the market environment changed.

I've been also very clear that my number one priority was to get this company back to growth, and sustainably so, and this is why if we remember that whilst we have been talking about the 2 to 4 percent we have not been, very specifically, giving any guidance on anything else, neither the margin nor about the spending. Neither do we intend to do that on the short term.

Why do we now, giving this additional guidance, and why now, which is the same question I got earlier, it's because we feel that we have reached a level in our change program where we are competitive and should be able to put a number on this competitiveness at the top line, number one exercise, which is the one I have given. Why now, well I didn't know this rule that says you can't do that in the middle of the year, I just share the way I feel of the company and the progress that we have made. As to the future, and back perhaps to Victoria's question, if there was perhaps another message in the comment, it is that I am very clear that giving a 3 to 5% growth going forward at the expense of causing you deterioration of margin would certainly not be much value generation, and I was reaffirming, perhaps clumsily, that we still remain within the framework of the 2010 margin comment, and just to avoid the ambiguity that may have been there [inaudible] because [if you figure out] exactly what that meant, it meant anything between 14.5 and 15.1, just put a clean number on it for simplification purposes. And that 's all. That's all what is there.

And it just as one proof of confidence and second as one [inaudible] that is what [inaudible] profitable growth and value creation.

With that I would like to thank you for the questions and hope that we have provided sufficient clarity on the development of our business and the progress of the improvement of our competitiveness. Thank you.

Thank you, ladies and gentlemen, this conference has been recorded. [OPERATOR INSTRUCTIONS].