聯合利華 (UL) 2009 Q1 法說會逐字稿

Welcome to Unilever's first quarter results 2009 conference call. This will be presented by Mr. Paul Polman, Chief Executive Officer and Mr. Jim Lawrence, Chief Financial Officer, concluding with a question and answer session. (Operator Instructions). This conference is being recorded and will be available for a period of two weeks. Details of the replay numbers and access codes can be found on Unilever's website. A video webcast and a podcast of Unilever's teleconference will also be available on Unilever's website www.unilever.com.

We will now hand the call over to Mr. Polman.

Good morning everybody and welcome to Unilever's first quarterly results call for 2009. I'm joined here by Jim Lawrence, our Chief Financial Officer, and by James Allison, our Head of Investor Relations.

Jim will briefly run us through the quarter one performance and after that, I will give you a little bit of my own perspective on the markets, our priorities, as well as the progress we are making towards them. And then hopefully we'll have plenty of time left for questions after that. So let me first hand over to Jim.

Thank you Paul and good morning everyone. Before I get started, I do draw your attention to the usual disclaimer relating to forward-looking statements and non-GAAP measures.

After that, let me start by summarizing the highlights for the first quarter. Organic growth of 4.8% was underpinned by continuing double-digit growth in our D&E markets and strong performance in our Americas region. In Western Europe, our market shares are still down but we have seen some improvement since quarter four.

Our savings programs are continuing to deliver strongly, helping us to offset high commodity costs and adverse currency pressures.

Underlying operating margin declined by 30 basis points; it would have been flat without the impact of dilution from disposals.

We are benefiting from our strong balance sheet and prudent financial management. We issued two bonds in the quarter, one in the United States and another in the UK. Both issuances at very competitive rates, both issuances heavily over-subscribes and both issuances performing well in the secondary market. And I should correct that it was three bonds, two in the US, one in the UK.

And we continue to strengthen our portfolio with the announcement of the acquisition of Baltimor, the leading ketchup business in Russia. The acquisition of TIGI, the premium range of salon hair care brands which was completed at the beginning of April.

Overall, a solid performance in a tough environment, in line with our own expectations.

Turnover in the first quarter was EUR9.5 billion, that is 0.7% lower than last year. That includes a negative currency effect of 2%. And disposals, net of acquisitions, further reduced turnover by 3.3%.

Given the above, underlying sales growth was 4.8% in the quarter with price at 6.8%, while volumes declined by 1.8%, similar to the volume decline in quarter four of 2008.

Turning to the regions, our strong organic growth continued in Asia, Africa, CEE with underlying sales up by 9.5% in the quarter. The price component remained high at 10.5% plus, and volumes declined by a little under 1%. There was some further trade destocking in a number of the markets in this region.

Growth continues to be broad based, with particularly strong performances in Indonesia, South Africa, Australia, Russia and Vietnam.

A number of countries in Central Europe, by contrast, saw double-digit declines in volume as the markets softened considerably. That said, our own share performance in these markets continues to hold up well.

Underlying operating margins improved in the quarter by 170 basis points, reflecting good recovery of cost increases, lower media rates and the phasing of our innovation program.

The Americas grew by 7.2% in the quarter, with pricing up by 8.3% and volume down by 1%. This represents an encouraging step-up versus the previous quarter.

In the US, underlying sales grew by 3.8%, and our consumer business returned to positive volume growth. We continue our planned exit of unbranded business in the Food Service Division, and this suppressed the overall growth levels in the US.

There has been some down trading in our categories, with private label gaining some share, but not at our expense. Indeed, our own market shares are up in the United States.

Latin America grew by 11%, with volume improving, but still staying slightly negative. In the quarter, we saw particularly encouraging progress in Brazil and Mexico. Underlying operating margin improved by 60 basis points in the quarter, and that is despite a negative 80 basis point impact from the disposal dilution.

Western Europe. Underlying sales declined in Western Europe by 2.8%. Volumes declined by 3.7%, and underlying price growth was plus 1%. Markets slowed significantly in the first quarter, and our shares are still down compared with a year ago. That said, our share performance improved on the levels of the fourth quarter of last year.

Sales performance in the UK was strong, and it was volume driven, and sales in France improved to close to last year's level. Sales in Spain were down significantly, reflecting the very challenging market conditions, but also the tough comparator of Q1 2008, in which volumes were boosted ahead of a system implementation at the end of the quarter. Germany remains difficult, with lower market volumes, a tough retail environment and comparatively low promotional volumes.

Customer service levels in the region improved throughout the quarter. The transparency and the visibility provided by our regional IT system is starting to improve the ways of working between our European supply chain company and our multi-country organizations in the region. Concerted actions to address weakness in volume will, we believe, progressively come through as the year unfolds.

Operating margin in the quarter was down by 310 basis points, reflecting the combined impact of continuing high commodity costs as we worked through our forward covers, the adverse impact of exchange rates, especially on our important UK business, and the impact of lower volume on fixed cost recoveries.

Now let's spend a few minutes on some of the innovations which have driven growth in the first quarter. And we'll go category by category, beginning with Savory, Dressings & Spreads, which grew by close to 3%.

In Savory, Ragu pasta sauces have performed strongly in the US by appealing to consumers or eating at home with our "feed your kids well" campaign. In Savory also, we continued to roll out Knorr Stock-pots across Europe. Hellmann's continues to perform very well, based on simple ingredients and healthy oils. Hellmann's Light, with our citrus fiber technology, continues to be rolled out globally.

The "goodness of margarine" campaign is helping to reframe the health benefits of our margarine brands versus butter. This is working well. We've implemented the campaign in 16 markets, and we plan to roll it out to nine more over the course of the next 12 months.

Ice Cream and Beverages grew by over 4%. Ice cream innovations in quarter one include the launch of Popsicle slow melt water ices. This is with ISP technology, and it lasts for over 30 minutes without dripping. We also introduced a new fruit Magnum Temptation variant, and a Klondike ice cream with more chocolate.

Lipton, our EUR3 billion plus beverage brand continues to perform well. Our pyramid teas are delivering exceptional growth in Russia and in Poland. And our premium range of Lipton fruit teas and infusions has been rolled out across Europe.

Home Care grew by 10.7%. Surf, our value brand, is performing strongly across all regions. In Asia, we've launched Dirt Is Good with Oxymax, which provides tough stain removal in a single wash, thus helping the consumer to save precious water.

In Household Cleaning, we launched Domestos 24 Hours in over 10 European markets, and our best ever Cif cream in a more contemporary and ergonomic pack.

Our Personal Care categories grew by 4%. Dove Go Fresh and Axe Dark Temptation deodorant are continuing to perform well. More recently, we've rolled out the successful [Clear Mix] in Argentina, and we launched Axe Hair in the United States.

Our range of clinical protection deodorants in the United States is growing share and has helped to extend our leadership of the category. We have now launched Sure Maximum Protection in the UK to all of our benefit.

Let's now look at the development of operating profit. Here's the waterfall chart, which shows the moving parts of operating profit versus the same period last year.

Lower volumes and lost profit contribution from disposed businesses reduced operating profit by around EUR150 million. Price increases boosted operating profit by over EUR600 million, but costs were higher, and they were higher by around EUR900 million.

Within the cost component, commodities were EUR600 million higher year-on-year, and that includes negative currency impact. We expect commodity costs to be up again in quarter two of this year versus last year, but then we expect them to be down in the second half, and consequently, broadly flat for the year as a whole, again, including a negative impact from currencies as they now trade today.

Savings in the quarter were close to EUR300 million. Advertising and promotions were down by around EUR80 million, which reflects lower media rates, the phasing of innovation, and our ongoing efficiency programs. I should also note that media rate negotiations in one of our larger Asian markets led to a temporary suspension of media buying for a portion of the quarter, and consequently a reduction in spending. Phasing plans call for higher levels of A&P in the coming quarters as we increase spending in support of innovation and brand-building activities.

So with all this, it left operating profit before RDIs down by about EUR30 million at constant exchange rate. Absent the effect of the lost contribution from disposals, operating profit would actually be up 3% versus the first quarter of 2008.

There was an underlying decrease in operating margin of some 30 basis points in the quarter. Substantial commodity cost increases were only partly offset by lower overheads ratio, and lower A&P spending. We expect gross margin to continue to be down quarter two versus last year, but then to improve thereafter as commodity costs ease.

A step-up in A&P spending, together with a still subdued gross margin, will mean that underlying operating margin in our second quarter will be lower than prior year, before recovering in the second half.

Earnings per share declined by 44% in the quarter, largely as a result of prior year disposals profits, mainly related to Boursin sale, and before the combined impact of restructuring, disposals and impairments, earnings per share reduced by 12.5%. And this was largely driven by the negative impact of pensions on the interest line in 2009, and by the low prior year tax rate, which in 2008, benefited from favorable settlement of previous tax audits.

Net debt increased by EUR1.1 billion in the quarter to slightly over EUR9 billion at quarter's end. The majority of this increase was due to the negative impact of exchange rates, particularly the strengthening of the US dollar.

Cash flow from operating activities was just over EUR100 million, largely reflecting a EUR1.1 billion seasonal outflow of working capital, and cash pension contributions, which approached EUR300 million.

Working capital is progressing in line with our plan, with an improvement in cash conversion days in every quarter since the high of quarter two in 2008. We expect this progress to continue into the next quarter, and we expect to see a sizable year-on-year working capital improvement at the end of June.

Liquidity remains strong, as evidenced by our ability to issue bonds at very competitive rates. In February, we issued $1.5 billion in two tranches, and we followed that in March with a GBP350 million sterling bond. Both of these issuances were well received by the market, and they were priced very competitively, an indication of the financial strength of our Company.

The net pension deficit increased by EUR200 million in the quarter to EUR3.6 billion, which reflects a reduction in asset values, while liabilities were largely unchanged.

In these uncertain times, our financial strategy and strong cash generation remain a source of competitive advantage. It supports our highly attractive dividend policy, while providing ready financing for attractive bolt-on acquisitions.

And in the quarter, we announced the acquisition of the Wonderlight laundry brand in Sri Lanka, and Napoca, the iconic Romanian ice cream brand. We completed the acquisition of TIGI in early April. And just last week, we announced the acquisition of Baltimor, the leading ketchup business in Russia. And this is an excellent addition to our Dressings category portfolio, with a strong positioning in the value segment in Russia.

And with that, I'll now hand back to Paul.

Well, thank you, Jim. Let me just say a few words about the markets in general, our own performance, some of the initiatives we've been taking to strengthen the business, and then the progress we are making, before I open it up for some Q&As.

Now this time, we have benefited of having most of our competitors results actually being published before our own, which gives us an opportunity to calibrate our performance better in this volatile environment. But I'll leave it up to you to actually do that.

Now let me briefly share with you some of my thinking of what we are doing now to ensure that we come out of this recession stronger, and in a better position to achieve a more consistent, long-term performance.

First, we continue to operate under the assumption that markets will be soft, and prudently plan our business accordingly. Both Europe and the US are forecasting negative GDP growth this year and, at best, flat next year.

In the US in the last quarter of 2008, consumer spending on food actually fell by an inflation-adjusted 4%, which is the steepest drop we've seen in over 60 years. And we expect the global markets to stay soft, with growth of around 1% to 2% a year in value, and probably flat in volume.

The effects of falling house prices, excessive credit card debt, falling equity prices and job security fears, are contributing to ongoing consumer habit changes. In fact, never has consumer habit behavior changed so rapidly.

We're clearly seeing a premium placed by consumers on value. For example, coupon searches on the Web are at record highs in the US; substantial hits on our website for value recipes; consumers more frequently shopping with smaller basket sizes; switches towards perceived value channels; consumers sticking closely to a shopping list, with less impulse buying becoming more common, even in men; and value in many categories is becoming even more of a discriminator of choice.

So consumer behavior is changing, and we do need to understand and adapt to take advantages of the opportunities that this brings. Yes, there are some categories where private label has benefited from the economic slowdown, and probably more in food than in HPC, but not everywhere, and certainly not a consistent picture.

For companies that are close to the consumer and shopper, it is not all bad news. I continue to believe that strong, well-supported brands, committed to innovation can win in this environment, and we are seeing evidence of that in many places, even in North America and Europe. For example, brands like Hellmann's, Bertolli and Ragu in the US are clearly benefiting from increased sandwich and pasta consumption at home, as well as a good innovation pipeline. The same is true in Europe, where our Home Care and Tea businesses are both performing well behind a steady stream of innovation.

Let's briefly look at the regions. In the developing and emerging markets, we are pleased with our progress, even though there was still some destocking and currency weakness in many countries, which led to increased prices and slower market growth.

Our businesses in countries like India, Brazil, China, Vietnam, Russia and Indonesia, although slowing, are holding up and growing faster than the developed world. The main softening, as Jim has mentioned, has been in Central Europe, some African countries and Central America, where our footprint is still relatively weak.

But there's no doubt that our overall D&E footprint remains a competitive advantage over the long-term, with still strong growth opportunities from building share, expanding markets and the continued population growth. Russia and China, which I visited in the last few weeks, will continue to be priority investment areas.

In North America, consumer volume is actually picking up from last quarter, boosted by the eating at home phenomenon, and good innovation. At the same time, our Food Solutions business is seeing lower volumes. But frankly, that's mainly from the divestiture of non-branded business, and only partly as a consequence of consumers eating less outside of the home.

The main challenge in Western Europe, where GDP as a whole is expected to decline in 2009 by 4%, is our overall situation. Going forward, we expect these markets to continue to be soft. We have some brighter spots like the UK and Belgium, and there are early signs that our shares, although still down year-on-year, are actually improving as we step up our innovations.

Now let me briefly mention some of the actions we are taking to strengthen the business long-term.

Mentioned before, we're now focused on our growth agenda, but as you can see, with still strong pricing as a component. That is, therefore, profitable growth, without compromising operating margins or cash flow. Not growth at any price.

The primary focus for growth is our core business, but we will augment this with selected M&A. Now we see early indications that our sharpening strategy is yielding results.

First, our EUR13 billion brands, to which we gave priority, are in aggregate growing ahead of the Company. Second, our US business has returned to positive volume and share growth over the quarter. And third, our share decline in Western Europe is showing signs of stabilization, although not at the levels yet I'm happy with. And finally, the volume trend is picking up through the course of the quarter, after a relatively weak start.

Following the portfolio and organizational transformations of the last few years, we are now driving the cultural changes needed to succeed long-term, making the Organization increasingly consumer and customer focused, faster and more disciplined, with an action plan we call [Nine] for 2009, which has some simple focus areas for the whole Organization to follow; for example, making the innovation pipeline more robust. During the first quarter, we moved to the one R&D structure for Unilever, focusing our R&D efforts in six global centers to better leverage our skill.

The organizational model now allows us to consistently roll out innovations multi-regionally as we move from an opt-in to a justified opt-out approach in our markets. For the one, that's in the rollout of our Ponds Facecare range in North America and the Middle East and South Africa. Signal White, now our toothpaste and the Dove Hair Minimizing deodorant, have been rolled out across Latin America. Lipton Linea has been rolled out to Russia and China. And premium variants of the Lipton Pyramid Bag have been rolled out across Western Europe and CEE. As a result, we expect to consistently get more incremental turnover from our innovations.

Now support was comparable with A&P, at one point EUR1.1 billion for the quarter, but down by 110 basis points versus the first quarter of last year. Yes, we do see media rates coming down rapidly. Yes, we are benefiting from greater efficiencies. And yes, our competitors are spending less, some actually a lot less.

Now rest assured that in all of this, we will not compromise on maintaining a competitive share of [voice], and strongly supporting our innovations.

However, the reality is that more of our innovations come in the second quarter and later. It simply takes a little bit of time. You will see a pickup in A&P as we go forward behind strong initiatives such as Starbucks Ice Cream in the US, or the Dove Hair Minimizing deodorant and the Ponds Facecare initiatives I talked about that we've launched in the various countries.

Not only are innovations getting bigger, we're getting actually faster in addressing those areas where our brands are challenged. We call them the 30 day action plans, which are now in place for all key markets, representing about 70% of the business. Indeed, some actions have already been taken and we're starting to see the effects in the marketplace; in other areas not yet.

We see good progress in South Africa, for example, where our Laundry market share have risen strongly after several years of decline. We have fixed supply chain issues, improved formulations, and filled the gap in the product range at the entry level, with the low priced variant of Surf.

We've seen similar improvements in other parts of the world, like the Indonesian skin cleansing business, our ice cream business in the UK, Germany and Australia, etc., etc.

However, it's not all plain sailing. Our global Haircare business will take longer to fix, as our equities are not yet as strong as we want to. And the same is true for things like Knorr in Germany or Skin Cleansing in India, where actions will take longer to show results.

I'm also pleased to see the progress we're making in our Go To Market capabilities, where we have focused as a priority on improving customer service. Although we still have some way to go, we have already seen significant improvements across all of the regions, resulting in better on shelf availability, and improved relationships with our retailers.

Following a successful implementation in Europe, we now also have decided to roll out our regional supply chain structure to Asia. On cost reductions, we are accelerating our restructuring plans, and aim to complete most of the remaining projects by the end of this year.

As you could expect, most of the restructuring is actually concentrated in Europe, and we've pulled forward activities in France, Italy and Germany. We're also looking at other parts of the organization, especially the overheads to make the organization even more consumer and customer focused. Accelerating the plans this year will allow us to fully focus on building the business in 2010, with restructuring much reduced and hopefully a part of normal ongoing business.

A big opportunity continues to be simplification, and with the implementation of the regional IT systems, we're now getting the transparency we need to take faster actions here as well. An example is in formula and SKU simplification. In laundry powder alone, for example, we aim to reduce the number of base formulas by well over 50%. It will give us lower cost, but also other benefits in operational efficiencies, reliability, lower working capital, and improved cross-border sourcing opportunities.

On cash flow, which is the other focus area, we are on target. Our cash flow -- our cash conversion cycle is actually improving in all regions. And working capital objectives, as you know, account for one-third of the variable pay target for all managers.

Now finally, let me say just a few words about the organization and culture. As mentioned, we will evolve the culture towards a faster more consumer-centric organization, with clearer responsibilities and accountability. We are driving speed and discipline with our 30-day plans, and ensuring that we are aligned around the common Nine for 2009 action plan. We have set six monthly variable pay targets, and simplified the number of individual objectives aligning them better between the various business units.

We're also continuing to make good progress in putting the right people in the right jobs. Roughly one-third of the people filling the top 100 leadership roles will have changed or rotated by the middle of this year.

(Technical difficulty) volume growth, whilst protecting underlying operating margin and cash flow. I do believe that volume growth can be achieved profitably and sustainably, and that this is the surest route to long-term value creation. We are strengthening our brand and our innovation capabilities. We are improving our Go To Market execution. We are cutting costs that the consumer is not prepared to pay for. We're strengthening the organizational capabilities, and will continue to set the bar higher in the areas that matter.

With that, ladies and gentlemen, we are happy to take your questions now.

Thank you, Mr. Polman. We will now poll questions from analysts. (Operator Instructions). Okay. We have our first question. Our first question is from the line of Martin Deboo from Investec. Please go ahead.

Gentlemen, good morning. I'm interested in the margin movement in Europe, the negative 310 basis points. Can you give us some more color and commentary around that? And could you particularly talk around how the weak sterling is affecting margin? Thanks.

Sure, Martin, the operating margin before RDIs for Western Europe was down 310 basis points. And there really are three parts to that. The first is the high commodity costs year-on-year, which is both in dollar terms, they're still high year-on-year, and then with currency impacting even more. The second -- and that's true, of course, for all the regions.

The second is that, in particular, the devaluation of sterling against the euro in the quarter meant that the costs in the UK were higher in sterling than they were a year ago, putting pressure on margins. And finally, we had de-leveraging of our supply chain, with volume down quarter-on-quarter, and that causes a less fixed cost recovery. So those were the three factors behind it, Martin.

Okay, Jim, just so I can understand it, presumably the UK is taking adverse currency translation on the commodities for what it's manufacturing in the UK, but is the UK a net importer or exporter of goods for sale, if you follow me? Presumably, there is a flow of product, complete product, from Europe into the UK. Is that an issue as well?

We manufacture some things in the UK for the UK. We manufacture some things in the UK for Europe, but the majority is a net import, but it's not significant.

Okay, all right. Thanks for that. That's very useful. Thank you.

Thank you, Martin.

Thank you. We'll move on to our next question. The next question is from the line of Paul Hofman from Cheuvreux. Please go ahead.

Yes, hi good morning. Paul Hofman, Cheuvreux in Amsterdam; a question about emerging markets. You say you've still some favorable volume growth, categories or trends there. But anyway, there was a minus 1% volume pressure. What is exactly the impact from emerging markets -- sorry, from Central Eastern Europe?

And secondly, you also mentioned destocking there. What's that impact there more or less? Thank you.

Yes, thank you Paul. As I mentioned, I'm very pleased actually to see the progress we're making in the emerging markets. As you've noticed, there is still a strong price component, over 10% in the region, and only a small volume decline, which we basically attribute to the Eastern European countries. We've seen some softness in the Czech Republic, or in Hungary, those parts of the world. Surprisingly strong performance for us still in other parts like Russia, etc.

So we read this as positive, but it's also true that we have seen trade adjustments in that part of the world, especially in the wholesale channel as some of the economic pressures are playing through there as well.

Sorry, if you take Central Eastern European out, is it then still positive?

No, if you take Central Eastern European out, we would be about flat.

Okay, thank you.

Thank you. Moving on to our next question, the next question is from the line of Julian Hardwick from RBS. Please go ahead.

Morning. I just wondered if you could run us through the volume trends in each of your categories and, in particular, highlight the categories where you've seen significant changes in your market shares across the quarter.

And secondly, given the acceleration in the restructuring program, should we expect that you'll generate bigger cost savings in the second half of the year than the circa EUR300 million you achieved in the first quarter?

Let me take the second question first because it's pretty straightforward. We -- at EUR300 million in the first quarter, we're at a run rate which is faster than we had last year, and we don't expect that run rate to go down. So we do expect the savings to continue through the year.

The most important factor though as we go quarter-by-quarter will be commodity costs, where, as I said in the second quarter, they will still be up year-on-year versus Q2 last year due to both the dollar-based commodity costs and the coverage that we have, as well as -- then the currency translation, again, assuming currencies stay where they are today.

However, in the back half, we expect in Q3 and Q4 progressively, that the year-on-year difference will be positive in terms of commodity costs. And as a consequence, poor commodity cost for the full year, assuming exchange rates stay where they are, they'll be flat. And so there'll be a net for the full year of flat, and we'll have the savings programs come through. And that's our expectation of margin development through the year.

And then, Julian, if I take the second part of the question on the categories and a little bit of a global picture on that very briefly, I think the first thing to note is that all of our categories actually grew in value. And even on the toughest benchmarks like our Food Solutions business, we're actually up in value. So on the categories that did particularly well is the Tea and Deodorants, not surprisingly with strong initiatives that we've talked about. Those categories we grew both in value and in volume. But I'm also pleased to see in other categories like Ice Cream, Savory and the rest of Personal Care, we actually grew in value, and broadly maintained volume. Little ups and downs in perhaps different countries, but we broadly maintained volume.

The areas where we actually grew in value but where volume was down were limited to spreads where we've seen the market behind butter, butter prices coming down, and in our Laundry business in some of the places. But broadly a consistent and good performance across the categories, with certainly a lot of upside still we still have there.

Okay, thanks very much. And could I just ask on price evolution over the course of the year, how rapidly we should expect that to unwind?

Well, the guidance which we give relative to rollover pricing is it's about 2% to 3%. And in the first quarter, obviously, it was substantially more, and it worked its way down quarter-by-quarter as you looked back to what we did last year. And in the first quarter, we did not take up net prices. We simply had the rollover. And, in fact, some places with promotional spending, we took effective prices down, although in some countries where the currencies weakened, we had to take our prices up to accommodate the cost increases. But for the year as a whole, expect a rollover of 2% to 3%, obviously working its way down quarter-by-quarter.

Thanks very much.

Okay. On pricing, it's also important to point out that our price component is not coming down as much as some of you might have expected over the first quarter. We were one of the -- clearly, one of the companies that has taken prices up earlier next year -- last year, than our competitors had. And as we get our volume to grow again, and we're getting encouragement by that, I just want to point out that that is not price driven. We're looking for initiatives that sustainably build our categories, and I hope that you can see that in the price component that we publish now behind these first quarter results.

Great, thank you.

Thank you. We'll move on to our next question. The next question is from the line of Marco Gulpers from ING. Please go ahead.

Yes, good morning, gentlemen. Two questions for me. What effect do you expect from the harmonizing trade terms and conditions for the Company, but especially also in Western Europe?

And the second question is on your internal 30 day fix up plan, how is this helping volume recovery that you've mentioned to expect for the second quarter? Just to give us some more feeling on that. Thanks.

That's good Marco. Well, it's very simple. On the trade terms, obviously, we are already dealing for some time with first of all European retailers. Retailers like Carrefour, or increasingly the Tescos or the (inaudible) of this world, and there has been a fair amount of harmonization going on over the last few years. And so has our price and trade term harmonization with the move to the euro, which is not new.

So we are broadly in a good position across our brands in Europe, but will continue to monitor that. I don't think that there's anything changing in today's environment, at least what we see.

The 30 day plan is actually more important. What we look at is, we look at about 70% of our business, at what we call the key sells, which might be ice cream in Germany, it might laundry in South Africa, it might be hair care in the US. You understand what I'm saying? And in some of these key sells where we see our business being disadvantaged, we just want to put 30 day plans in place where the Organization is aligned on the action steps. It doesn't always mean we immediately implement it. You understand sometimes it might require changes in our formulas or packaging, and these take time. But we try to be aligned on the plans what we do, and get that in the marketplace as soon as possible.

If you take the example of South African fabric cleaning we talked about, our business has been under pressure there frankly for the last two years, and we have now taken action quite rapidly by launching a value variant on some that is gaining share. We are improving the product quality across our portfolio. We've stepped up our customer service, and we've seen our shares respond fairly quickly, as you would expect.

In Indonesia, our skin cleansing that I mentioned, we looked for example at stepping up our marketing support. We've done that. We've built in significantly higher loyalty schemes, and we're seeing our business correct.

Now in other areas, I mentioned that I wasn't happy totally with our Indian skin business yet. There it simply takes longer to have the actions we're taking getting through to a much more dispersed retail environment where the general trade takes longer to reflect changes than the modern trade does. So we knocked them off one-by-one, and we keep looking at that.

Right.

But broadly, we feel comfortable that with the stepped up innovations that we're doing and the faster rollout of those, as well as our 30-day plan that we're putting in place, that we are getting increasing benefits from that in our volumes.

Right. Then maybe one follow-up question on -- which is more technical of nature. The D&E growth in the first quarter. What was that overall for the Group?

Well, you see the reporting that we do. So we have the total growth on -- if you take -- you can see that from the results. If you take the D&E countries in total, we have about 10.4% underlying sales growth, which I read as very competitive based on the results I've seen from all the other companies published. Within that, there is a small component of volume decline in line with quarter four, despite very high pricing still that is taking place. And the volume decline, frankly, as I mentioned before, is isolated to some spots. I mentioned Central Europe, and frankly Central America was the other one I should have mentioned. But the rest of the countries we're pretty happy about.

All right. Thanks a lot.

Okay.

Thank you. We move on to our next question. The next question is from the line of Xavier Croquez from Exane. Please go ahead.

Good morning, gentlemen. Two questions. The first one is on the EUR1 billion-plus brands, the 13 you mentioned. Can you just remind me of the share of sales that they represent? And if you can provide us their organic sales growth and volume, that would be great.

The second point is, you mentioned at the end of your speech a couple of areas where you were expecting medium/long-term fixing. I noted three of them. Over the last -- so it was hair care, skin cleansing in India and Knorr in Germany. Beyond these three topics, is the list much longer? Or after spending a little bit more than six months in the Company, which are the main areas where you think it's going to take time to be where you want to be? Thanks.

Yes, thanks, Xavier. The -- first of all, the 13 brands that have a EUR1 billion or more in turnover, that's about 50% of our total turnover. So that's a big chunk of that. And, obviously, we're looking at growing increasingly our portfolio, but in order to do that, we need to be sure that our leading brands are getting stronger as well, so hence that focus. And that group of brands in aggregate is growing ahead of the total Company, and has positive volume growth. So we are very encouraged by that.

Within that, we will -- there's obviously different brands and different pictures. I don't want to go through that in detail because we really don't want to get to those levels. But I can share with you that brands like Surf, which have a good value proposition, are growing very fast. Our Dirt Is Good brand is growing. The Axe brand that Jim talked about, our Hellmann's dressing is absolutely on a roll behind very, very strong innovation and the more eating at home trend. Our Lipton brand is doing very well; our Lux brand is doing very well. So we're getting encouragement that, that is more consistent, and I'm seeing definitely accelerations there.

In terms of the overall Company, again, if you run an average there, there are some things below the average and some things above the average by definition. But we would like to see better performance on our savory business in Germany, and we're starting to see our soup business responding positively, again, behind value initiatives and new launches of soups. But we have more to do there.

Our hair care business has been relatively soft. The market has definitely moved to the top and to the bottom with putting pressure on the middle. Some of our competitors are seeing that as well. The TIGI acquisition has been strategically right, and I feel very good about that. But we need to strengthen the other equities again there as well globally, and obviously actions are underway to do that.

And then we've mentioned some individual pockets like skin in India or others that we look at. But broadly, I think I get encouragement to see more and more of our sales in better shape month-by-month than when we started.

Thank you.

Okay.

Thank you. Moving on to our next question. The next question is from the line of Sara Welford from Bank of America Merrill Lynch.

Morning. I had a question on trade destocking. You've talked about trade destocking in Asia, Africa and Central Eastern Europe. Do you see this trade destocking continuing? Do you think that's broadly over? And are you able to strip out at all the impact of trade destocking? I know it's difficult.

Yes, I think you answered -- with your last sentence you answered that question. It's a little bit difficult to look at all of that. But we definitely knew that some is going on as there is more of a pressure on credit in the system, and we've seen some of that in individual countries. But frankly, not a consistent picture. And where we've seen share movement for the positive or the negative, I continue to believe that it has more to do with us being close to the consumer, and us having a strong, or lack of for that matter, innovation program.

It's deliberately -- we want to stay away from these discussions of destocking or not, although Eastern Europe has probably been the area where we have seen it and have measured some of that. I would have expected, if you want my private opinion, that the D&E markets probably would have been flat were it not for the destocking, but we cannot really see it in these details.

But you look at markets that some report, Russia being weak; Russia is strong for us. Some say the Far East is showing signs of weakening; we actually have stronger performance than the previous quarter. America is picking up whilst others report America being weak. If I look at private label is growing in Europe, yes, that's true in some categories, but not in all of our categories. In fact, some of our strongest growth comes from the UK as a whole where private label is very strong.

So I haven't seen a pattern, and for that reason I didn't think it was a good idea to use too many excuses. The Easter has definitely shifted; the weather has definitely been lousy; the truckers have definitely been on strike in South Africa and in India in the last quarter. We definitely had sell-in last year against strong price increases; our IT implementation systems; the trade is definitely destocking. But at the end of the day all that stuff I don't care about. We are focused now on starting to grow our volumes again, we're getting encouraging signs that we're doing that and I think most of that destiny is in our own hands if you want my honest opinion.

Okay. And I guess as a follow-up to that, a more qualitative question. You've said that you -- obviously you want to concentrate on volumes and that's going to be your primary focus, but equally you've also got, at the moment, the commodity costs that are still up year-on-year. So how do you think about that volume price equation? Are you basically not going to compromise on the pricing as long as you have the commodity costs going up? Is that broadly the way you're thinking about it?

Well we've always been consistent and we've always said is, we want to get our volumes to grow again and that's what we're focused on, but not at any price. We have put the whole organization on very simple targets which is underlying volume growth, operating margin and working capital. And as you can see in the first quarter, we are having a good discipline on --- about that. Our prices are not coming down as much.

In fact what you see is that despite our high price components versus our competitive set, we actually showed the slowest -- the lowest change in volume. And we try to invest in brand building activities for the long-term, not short-term pricing activity. So it's not just volume at every cost, it's a balanced approach towards growing long-term volume.

We're confident that we can achieve that because we're putting in a tremendous effort to pull forward savings. We have the ongoing restructuring program that the Company had started already a few years ago, where we look at pulling it forward to 2009. We have tremendous efforts in the organization itself and all cost components to cut out the non-value added costs. And obviously we're working those to see that we can reinvest in the business where appropriate. And that's why we're moderate on the margin predictions, we're saying whilst protecting our operating margin and will prioritize as we do that the volume growth that hopefully comes with it.

Okay thank you.

Thank you. Move on to our next question. The next question is from the line of Alan Erskine from UBS. Please go ahead.

Good morning guys.

Hello Alan.

I have three questions. One, just if you can give a little bit more clarity around the word protect, should we interpret protect as meaning flat margins? I notice in the statement you said that margins would have been flat in the first quarter bar disposals and things do look to be improving as the year goes on. So maybe just a little bit more clarity on what protect means?

Secondly, you say that you're going to see a decline in commodity prices in the second half. You say that the rollover pricing is around 2% for the year. But should we assume that you won't give any of this falling commodity prices to what you've said is a much more value conscious consumer? So are you saying it's 2% guidance or are you simply saying 2% is the rollover effect which may or may not be what you actually report?

And then my third question is on the emerging markets. Volumes, say flattish. How much of that do you think is still the elasticity effect of the pricing? In other words, as the pricing starts to fall away quite quickly, are you assuming that some volume will come back simply as a consequence of that? Or do you think most of this slowed volume is around the market? Thank you.

Yes, Alan. Very quickly, because on the margins itself, when we say protect margins we mean that we don't plan margins to go down at least. But we're sitting here in the first quarter, we cannot predict for the year plus or minus 10 basis points. So I'm not going into that direction. But nor do we look at it by quarter, we talk the total year. Next quarter, we have a lot of investment; we will spend -- innovations. We will spend A&P behind that. Costs will not have come down yet, so there might be a different margin movement. We manage this on the total year and we think broadly on the total year we can protect our margins. And I think in the English dictionary the word protect is pretty well described what that means.

In terms of the value conscious consumer, it is true that we will always ensure that our brand will stay competitive, that I can tell you. But what the market needs to understand and what we're trying to communicate it, it doesn't mean just price. Value is too quickly translated into price. I just came back from a long-term trip to the -- from a two-week trip to the Far East to see most of our countries. And for example, if you look at some initiatives on deodorant we're putting in mini roll-ons in Vietnam that are VND500 because that's just a unit price. It's a smaller package but people can afford it. Instead of buying the sprays, we are now putting in roll-ons or sticks which are cheaper.

In Knorr, instead of having the real meat, people cannot afford the meat any more so they buy our cubes that are pork flavored. And we're launching some of those things. So in [Rama] we've introduced a new butter -- a margarine variant just made for cooking and spread for everyday usage at a lower price point. So we are doing a lot of things to provide the consumer better value without really lowering the price. In fact those are growth initiatives, and that's how I like to look at it.

Jim talked about the Dirt is Good; our main laundry brand where we have launched an initiative called Oxymax. Well that's just stain removal with a simple single wash that's a better value proposition. So again I want to reiterate once more that it's not just all mark -- not all pricing. The opposite.

And if I could just jump in. Specifically Alan on the 2% to 3% which I quoted, that is a simple mathematical rollover effect from last year to this year. We'll see in fact what happens to the actual pricing, but that is the rollover effect.

And then D&E we have to look at the currencies. Unfortunately these people are hit many times with different things in that part of the world and our focus goes to continuing to work on improving their lives. But the reality is that most of these currencies have shown swings of 20% to 30% and you've seen that as well. And that gets translated again into pricing.

I'm actually surprised how well these markets are holding up. We continue to see growth in most of these markets albeit at slightly lower levels. These markets are growing. And we continue to see our significant presence in D&E which is now already over 50% of the total company as the key competitive advantage. I do agree with you that if these prices ease in the future that we should see that translated into even more positive volume trend. I don't disagree with you there.

Thank you.

Thank you. Move on to our next question. The next question is from the line of Jeff Stent from Citigroup. Please go ahead.

Good morning. I think Mr. Polman's quoted in the press this morning as saying he thinks Unilever should be able to expand sales at a rate of 1 to 2 percentage points ahead of its markets. I stand to be corrected, but under the old guidance of 3 to 5 I think the view on the momentum growth rate was about 4% or so. And I think you subsequently said that had been enriched by about 100 basis points through the disposal impacts you'd been making. So my question is once we're through the cycle, what is your view of the momentum growth rate of Unilever?

Well Jeff what -- as usual there's selective quoting in some of these articles and leaving words out. What I'm very clear about, and I've never been different, is that long-term companies like this should grow 1% to 2% above the market. And that is very clear to me. We are investing over EUR4 billion in A&P and we will continue to do that. We're investing over EUR1 billion in R&D. We're investing in our people and the quality of our people. And so if we cannot translate all that investment by growing ahead of the market, that's a pretty rotten deal for our shareholders.

So I think that, that is a fairly reasonable objective to get to. The challenge is to do that consistently, and while doing that, grow both top and bottom lines. And that's what we're trying to do as a model, and that would move this Company from what is a very good Company to a great Company. I think we can get there but there's no sense speculating, nor is there any sense chasing our own tails by putting out quarterly estimates and then revising them all the time, as some of our competitive set are doing.

So that's why we've set no guidance. We stick with that, we don't need that. We will look at delivering these numbers, we're focused on achieving that, and long-term we will get to there. I have no doubt about that. Our brands are strong, our innovations are getting stronger, our organization is strong, we have all the elements to succeed and we will continue to focus on that.

Can I deduce from that then that you're not willing to give me an estimate of what your momentum growth rate is once we're through the cycle?

Well there's no need for that right now.

Okay, thank you.

There's absolutely no need. Thanks.

Thank you. Move on to our next question. The next question is from the line of Harold Thompson from Deutsche Bank. Please go ahead.

Yes, good morning gentlemen, I've just got two questions please. The first one is on North America where you've shown positive volume growth on your core consumer business. Is that region benefiting from maybe earlier changes on price changes or marketing or product innovation, so that's what's to come elsewhere around the world, and you've also mentioned the UK there?

The second question is again on emerging markets' volumes. Recently you showed a chart of positive volume growth in emerging markets for over 20 years. Do you believe volume growth in emerging markets this year will be positive overall? Thank you.

Yes. Very briefly in the US indeed we've taken some actions that the US is more modern trade, so you can get quicker actions in place in the market, so there's no doubt about that and the US has done that whilst improving operating margins at the same time.

If you look at our US retail business, the growth is actually positive. We've talked about the eating at home habits that have benefited our portfolio from the Ragu brand to the Hellmann's brand, to the peanut butter. So we see that benefit. But at the same time I have to complement the US; our skin cleansing business is benefiting from our strong portfolio and initiatives in bars. We have launched the Vaseline for Men which is doing extremely well and we continue to have further gains in deodorants where we have quickly reacted to competitive launches in that area. So that organization it's very focused, it's very fast and you can see when you do that in fast moving consumer goods that you get the benefit.

For the D&E markets, if you want my honest opinion, I do think that the heavy pricing that had to be done there is behind us, that's important to keep the profitability right. That market again, has shown growth in overall value whilst improving operating margins. I think over the balance of the year we should start seeing positive volumes coming through there as well. So your assumptions there I would certainly support.

We have time for one more question.

Okay. Shall we move on to our next question?

Yes, there's one more; we have time for one more.

Okay, next question is from the line of Celine Pannuti from JPMorgan. Please go ahead.

Yes, thank you very much. My first question is on the value -- your views on value and how consumer habits have changed. Could you give us a feel of the level of promotions and whether this could hinder your plans to improve volume through higher promotion -- because of higher promotion on negative mix? So that's my first question.

And my second -- sorry I'm coming back on emerging markets. But one of your competitors mentioned that they had increased prices a lot and they have got volume drop as -- and they have lost volume share as a consequence. One, did you benefit from that? And two, I find it hard to [reconciliate] how well your margin has done in emerging market given the input cost and FX transaction cost there, so if you could just give light -- shed some light on this that would be helpful? Thank you.

Yes. Well volume promotion makes -- in some parts of the world, not in all parts of the world but in some parts of the world and we all live in Europe, that promotional intensity in some markets has increased. We've seen that as well and you would expect that. But the main drivers of growth once more in terms of value is providing consumers better proposition. Domestos 24 hour protection, it's a better proposition than other products on the market. So it's growing very fast and it's not just driven by price, it's driven by value.

And by the way on the market in more than 10 markets in Europe, the Knorr Stock-pots, the new jelly bouillon that we've launched, it's actually a more expensive product but preferred by the consumer because it simply is a better product, so it's better value.

The Dove hair minimizing deodorant that we're rolling out across Europe, it's a tremendous consumer benefit for women that we're starting to see take-up on, but that's not done at a lower price.

So we continue to look at propositions where we strengthen the value but not just the price. But I've talked about other things where we look at unit price or where we introduce a smaller or cheaper variant of a new product. Those are incremental initiatives for us, those are not price adjustments. But there are certain markets where we will stay competitive. If we see promotional intensity going up like we saw in Southern Europe, markets like Italy or Spain, we'll have to react to stay competitive with our brands.

The interesting thing is here as you say is that if you look at some of our competitors, they are having to work more the pricing component to get less of a volume pick-up than we do. If that is the case, that gives me confidence that we're on the right track by strengthening the underlying fundamentals of this Company. I'll have Jim answer the margins for a second.

Yes on the D&E margins, if we take Asia which is largely D&E, not entirely, it does include Korea, Japan and Australia, New Zealand. The margin in 2008 before RDIs was 12.1%, which is low compared to either -- sorry that was -- for the full year was 11.9%. 11.7% which is low compared to the Americas which was 15.4% and Western Europe at 16.8%. You should bear in mind though that includes Russia and China which we are investing in for growth and basically running more or less at a break-even level as we take our good gross margins and put them into brand building and development of our capabilities in those markets. So it's not surprising that it's down.

As we go from quarter four to quarter one, Asia margins have improved sequentially. And year-on-year Asia margins are up 170 basis points and for the quarter they're at 13.8% and that plays off with Americas at 15.3% and Western Europe at 15%.

As I said earlier, we've had to take the cost increases from commodities but we have successfully recovered that through substantial pricing and we have had lower A&P in the quarter but that has largely to do with the innovation program and when we're scheduled to launch them, as well as the fact that media rates are substantially lower in the quarter. And in one of the markets, we actually went off air as we were haggling with media sellers to make sure we got the right price, and were actually off air for a while. So that's how we saw the 170 basis points increase in Asia.

Okay, I thank you for joining us this morning and your passion and engagement about the business. We have certainly over the next few days or weeks, ample opportunity to engage more in the discussions once you have digested all the data in a little bit more detail. As we say it's only one quarter and in Dutch we say an early bird doesn't make a summer, but we think they are solid results with encouraging early signs. I'm confident that increasingly the actions that we're taking are taking hold and we can certainly reconfirm the priority for our business, which is to reignite the volume growth whilst protecting the underlying operating margins and cash flow.

Thank you once more and I certainly look forward to engaging with you in the near future. Thank you.

Thank you.

Thank you. This conference has been recorded. Details of replay number and access codes can be found on Unilever's website. An audio archive webcast will also be available on Unilever's website www.unilever.com. Thank you for joining.