聯合利華 (UL) 2016 Q2 法說會逐字稿

(Operator Instructions). We will now hand over to Andrew Stephen.

Good morning and welcome to Unilever's half-year results, which will be presented in the usual way by Paul and Graeme.

Paul will give the headlines of the first-half performance, and talk about how we're building agility and resilience into our business in a volatile and challenging environment. Graeme will cover the results in a bit more detail and Paul will wrap up. And we'll leave plenty of time for Q&A.

As usual, I draw your attention to the disclaimer relating to forward-looking statements and non-GAAP measures. With that, I'll hand over to Paul.

Thank you, Andrew, and good morning, everybody, or good afternoon. As you have seen, the first-half results again demonstrate the progress we're making in transforming Unilever into a more resilient company and a more agile company, able to generate the competitive and profitable growth that we aspire to, and deliver this in a consistent and responsible way.

Undoubtedly, reading the newspapers you would agree with me that this is a challenging trading environment that frankly is not getting easier. Within that context, providing a consistent growth, in this case, again, a top-line growth of 4.7%, is well within our guidance of 3% to 5% top-line growth.

It is also competitive, with all of our four categories growing ahead of their markets and building overall market share as a Company. It is also profitable, with our core operating margins up by a whopping 50 basis points to 15%, including the 80 basis points improvement in gross margin that we have flagged to you before. And last but not least, it is responsible growth.

In fact, our sustainable living plan brands, which now represent more than one-third of our turnover, grew a full 1 percentage point faster than the rest of our business. Now we're increasingly seeing that the Unilever sustainable living plan is a positive driver for growth, as well as a positive driver to reduce costs, reduce risks, and build the needed trust that is needed in today and tomorrow's world.

Now there can be no doubt that this is a fast changing and challenging environment. The IMF has, again, downgraded the projections for global growth for this year, which now seems to be a weekly occurrence coming from their offices. It's now down nearly a full percentage point over the last year, and is estimated to grow, at best, 3% on a global basis, and others actually put it closer to 2%.

Political uncertainty is acute and widespread, be it in the US elections, the fallout of the Brexit referendum, the Presidential impeachment in Brazil, or the regrettable events in Turkey, and the list goes on. With political processes and economic conditions being more difficult almost everywhere you look, it is not surprising that the consumer demand in all of the markets that we operate continues to be sluggish.

In emerging markets, consumer demand is flat in volume terms. In Brazil and Argentina in particular, market volumes are contracting, following the sharp reduction that we're seeing there in disposable income. Of course there is local currency market growth from pricing in Latin America, but this is offset, as you well know, by currency devaluations.

Market conditions here are likely to get worse before they get better. But we believe that we have obviously the depth of management there and Company presence. We have the portfolio, then all the other things needed to come out of this recession stronger than any of our competitors. In fact in Argentina, where I just recently visited, market shares are actually up, despite this challenging environment, by over 200 basis points.

In the developed world, consumer demand is down. In the European markets, where we already had a fragile situation even before the UK referendum, we decided to make it worse. They are now likely to deteriorate further and uncertainty will remain high for some time to come. And when there is uncertainty, you undoubtedly will see less investment from business.

In the US, market growth remains subdued in the 1% to 2% range.

Meanwhile new trends and technologies are shaping the future, disrupting the traditional models on a global scale, while at the same time, encouraging fragmentation on a granular or local level. This goes well beyond the rise of nationalism in individual countries. It applies to consumer groups, media choices, competition, and route-to-market channels. We call it hyper-segmentation.

Whilst this makes for a challenging environment to operate in, it is also a very stimulating one, and one that I believe Unilever is well placed to win in. We have the global scale but we also have the deep roots in the local culture. Our portfolio spends price points to meet the needs of different income levels, and includes a mix of both strong global brands as well as very strong and attractive local jewels. In fact in our total portfolio, 80% of our business finds itself now in number one or number two positions.

In these environments that we operate in, the strategic changes we are making to continue to build our business are obviously very important and they focus on driving agility and resilience. To get the same results or the great results that we are announcing today, you clearly need to work twice as hard as probably five years or 10 years ago.

So what are we doing? First and most importantly, we're stepping up our innovations. Secondly, we continue to evolve our portfolio, including the adoption of more flexible models for some parts of our business that operate on the edges of our traditional model. And the Dollar Shave Club acquisition we announced yesterday is a good example of that.

And thirdly, by implementing the three key initiatives, which we've discussed with you and set out at the beginning of this year or at the end of last year; they focus on strengthening the organization, as well as driving the efficiencies.

And these initiatives are the rolling out of net revenue management; finding the next wave of cost efficiencies through the zero-based budgeting; and implementing the organizational changes, which we have provisionally labeled New Functional Models but which we now call Connected 4 Growth.

Now let me say a little on each of these strategic planks, starting with innovation which, as you would agree, is the life blood of pretty much any business and where we've spent an enormous amount of time over the last few years to step up our scale and pace of innovations. And probably it's the key driver of this underlying strong top-line growth.

We've made a lot of progress over the years to step up our innovations to be bigger, better and faster. Needlessly to say, this will continue. At the forefront are our big global brands, with clear, differentiated brand positions.

And they're getting even stronger. More and more of them are building social purpose in their essence. And more and more are building brand equity. And as a result, we are overall growing share. This is what we've often explained to you as a focus of our core of the core. And in this environment, getting the stronger brands to be even stronger is more important than ever.

Dove is a great example already. It has had a clear purpose for many years, to raise the self-esteem of women. This is truly a global issue and Dove is able to address it powerfully, with communication that really engages people and builds tremendous brand loyalty. Dove grew, actually, 6% over the first half of the year, exemplifying the faster growth across our portfolio for brands with purpose.

Now we will continue to increase the differentiation of our innovations, with proprietary global technologies that give distinctive consumer benefits. Take ice cream for example. The reason that you're able to enjoy such high quality and delicious treats wherever you are in the world is because of our unique ice-structuring proteins or the double-dipping technology which we use in Magnum, which actually, by the way, a brand, despite lousy weather may I say, also grew again by 6% over the first half of this year.

We're speeding up the roll-out of our innovations as well. Our new antibacterial deodorant with motion sense active technology, which started in Latin America, has now been introduced in 36 countries over the first half of this year alone.

Or the laundry pre-treaters and stain removers; that's a new segment for us. We spent one year firmly establishing them in Brazil and obviously learning from that and are now rolling it out rapidly to the rest of Latin America, Southeast Asia and China. In all, and very roughly, about 70% of our portfolio is truly global and we plan to cut the roll-out time for these initiatives from first to last market by up to one-third.

The other 30% of our portfolio is what I would call more local; again, I believe a competitive advantage to have that balance between global 70% and local 30%. Roughly 20% is in local variants of our global brands. The global brand propositions and some of the core global technologies are, obviously, deployed. But we need local adaptations, driven out of deep, local consumer insights.

Take a brand like Sunsilk that does it particularly well, using local insights to meet the particular needs of the Muslim women wearing a hijab; or the Filipinos, who have spent much of their day on motorbikes wearing helmets. It is no coincidence that Sunsilk is our fastest-growing hair care brand.

The remaining 10% of our portfolio or so is truly local brands, meeting specific local needs and, yes, managed locally. You can see just a few examples on the charts here. A new special gum care toothpaste, Forest Balm under the Pure Line brand; or Bango in Indonesia, Lakme in India or, for the ones who love it, Marmite in the UK.

We expect that the changes we are making under the Connected 4 Growth initiative will enable us, in this case, to halve the lead time on many of our local launches as well.

The final aspect of innovation I want to cover is how we are addressing the high-growth segments. This can be with either global or local initiatives.

You will have heard many people talk about the trends towards naturals. There are many facets to this trend. The Russian example I just mentioned of Forest Balm is just one example of one segment, which you could call inspired by nature.

Others in this segment would include TRESemme Botanique, recently launched in our three largest markets; or Radox, which is charged by nature in the shower gel segment. We have a very strong presence in naturals across most of our brands. And that probably is driving part of the growth.

In food and refreshments, it is more about the authenticity or the origins of the ingredients themselves, as we now see with natural meal makers, for example, the range on Knorr or Pure Leaf teas that we've just launched.

In fact, taking Pure Leaf, with sales of around EUR500 million already in the Pepsi/Lipton joint venture, we grew nearly 30% in the first half of this year alone. Building on this success, we also will be introducing Pure Leaf and hot tea brands in our mainstream business over the balance of this year.

Another segment, just to pick on, is the free-from segment, like our non-dairy Ben & Jerry's, our Lux silicone-free shampoos or anti-allergenic products under the Neutral brand and the list goes on. And we see rapid growth in the Ayurvedic products that have their roots in the Indian herbal medicine.

We've launched these products on Fair and Lovely and we're introducing also some of our old brands, one of the old brands being Ayush. And, not surprisingly, we've acquired a hair care oil brand, Indulekha, which is also benefiting from this trend.

Now our innovation program is guided by our four-category strategies, increasingly differentiated, as you know, be it driving premium in personal care and refreshments or the focus on more added-value formats in homecare or getting into more attractive segments in food.

The category strategies are also building more resilience into our portfolio. For example, increasing the margins in homecare, which you see in these results once more; or driving up the return on invested capital in ice cream, again as promised and as delivered. This makes us less dependent on personal care and foods alone for our cash generation.

We continue to evolve our portfolio through M&A, I know something that is of high interest to many of you. Over the last seven years, we've built our personal care business from just 28% of sales to now nearly 40%, making it a business of some EUR20 billion in the process. Probably the fastest growing personal care business and I recall myself that it was about EUR12 billion when I started into this job.

And our foods portfolio is now much more focused on the attractive segments. The largest of these is cooking ingredients and two-thirds of this is now in emerging markets, where we are growing double digit. Of course, there is still a drag from spreads, but even with this, the total food category is accelerating its rate of growth.

We're also increasing flexibility in the way we approach our business models. By setting up, for example, the baking, cooking and spreads as a separate unit, we've given ourselves the flexibility to manage this part of the business to best preserve the value of the strong cash flow it generates.

Flexibility in our business model also helps us capture incremental opportunities and build capabilities by experimenting at the edges of our traditional structures.

This is what has enabled, for example, Ben & Jerry's to continue to grow at double-digit rates or our foods solutions business to grow at over 6%. It is also how we are expanding businesses like T2, Grom and the newly acquired prestige brands.

And yes, yesterday, by coincidence, we announced the acquisition of the Dollar Shave Club and I'm very excited about this move as you can imagine. Let me explain why.

First and foremost, it takes us further in the male grooming category where Unilever, if you exclude the shaving segment, is the outright number one. This is much more than just a razor company. Their portfolio and their dialog with consumers extends across male grooming into hairstyling, skin care and skin cleansing.

Male grooming, as you probably know, is a $40 billion market, growing faster than the personal care average, so we see this as a huge opportunity.

We're buying an innovative and disruptive brand with a cult-like following of diverse and highly engaged consumers. So it will be beautifully complementing our existing core male grooming brands like Dove Men+Care or X or some of the other brands.

What we are buying with this, also, obviously, is the category leader in the direct-to-consumer channel, which is very attractive and successful.

People call this a subscription model. The model involves upfront investment in acquiring subscribers during the rapid growth phase which this business is in now. Thereafter, it is inherently profitable with a loyal base of consumers who are actually buying a range of products across value, mid-tier and premium brands.

And finally, the acquisition brings expertise and technology in direct-to-consumer sales that we can use internationally and in other parts of our business.

So we believe that is a great acquisition that goes well beyond either shaving or e-commerce. And we look forward to welcoming the business into our portfolio and scaling it further, and working, obviously, needlessly to say, with Michael Dubin and his wonderful team that have built this business.

Now, before I hand over to Graeme, let me give you a brief update on the three key initiatives that we set out at the end of last year.

The first one is net revenue management. As we have explained before, this is a rigorous approach to optimize pricing and grow volume by unlocking new purchase occasions that we would have otherwise missed. So far, it has been rolled out to about one-third of our turnover and we expect to have about 50% covered by the end of the year.

The second is the organizational change which we have labeled as New Functional Model and is now called Connected 4 Growth. It will make the organization faster, simpler, more consumer- and customer- centric and future proofed for the connected world. It will help us unlock the trapped capacity to do more with fewer people.

We are creating a single marketing team with distinct and clearly defined global and local roles. We will better leverage what we do globally with scale whilst, at the same time, we will be dialing up in each country with what is best done locally.

The new organization will have fewer layers. There will be only one layer between a category leader in a country, and their category president, for example. So if I may bring this to life, [Phan,] who runs our personal care business in Vietnam outstandingly, will only be one click away from, let's say in this case, Alan Jope.

More of our resources will be deployed in strong global brand communities, as well as local operations and less in staff roles. There will be fewer touch points. And by redesigning our processes, we aim to reduce the time we spend on activities like managing the innovation funnel, by up to 50%. This means more time spent with consumers and customers and a more market-facing organization.

In a nutshell, Connected 4 Growth will help to make us more agile, lower cost and more efficient.

And finally, the third initiative is zero-based budgeting, which actually is an integral part of the 4G growth model and also, an integral part of the Connected 4 Growth organizational changes.

It will actually help us enable to identify the next wave of efficiencies, eliminate costs that don't add consumer value and change processes when needed. This is essential to both fuel investment behind growth and underpin the steady margin improvement.

A few weeks ago, we completed the feasibility phase and we're close to finalizing the value targeting stage to unlock the savings into our plants. Now, we are rapidly moving to implementation.

The feasibility phase gave us a more detailed and comparable view of our costs than we've ever had before and we've used this to benchmark both internally and externally rigorously. It has confirmed that overall and in many of the individual areas, our strength is already below the medium of our peers, but even so, there are plenty of opportunities to redirect spendings for higher impact or to eliminate waste.

To give you just one example, market research is fundamental to our growth model, but we can reduce the amount we spend on continuous research and leverage increasingly digital methods to focus more on deep consumer insights.

The work already done has confirmed to us that the ZBB program, together with the organizational changes under the Connect 4 Growth, should deliver the expected savings of at least EUR1 billion in overheads and marketing alone by 2018. And we will continue to absorb the associated restructuring costs within our core operating margin, so you get what you see.

With that, let me hand over to Graeme to take us through the results in more detail for the first half of the year. Graeme?

Thank you, Paul. Good morning, everyone. Good afternoon if you're listening in from Asia.

The first half-year results demonstrate continued delivery against the priorities that we set out for each of our four categories.

In personal care, growth of 5.7% was led by volume which was up in all of the subcategories. Our premium brands, those with a price index more than 20% above the average in the market, grew by 8.4%. And core operating margin increased by 10 basis points.

In foods, growth has continued to accelerate and was 2.3% for the half-year. Cooking products and dressings again grew strongly. We've slowed the rate of decline in spreads in North America, but not yet in Europe. Margins in foods remain well above the Unilever average, though slightly down on last year due to the relatively high exposure to Europe where we're lapping some one-off pension gains and a higher restructuring cost this year.

Home care margins improved by a further 250 basis points to 9.8% and we're now very close to our medium-term target of double digits. Growth remains strong at 6.5%, with very good uptake for our margin-accretive innovations.

Refreshment grew 4.1% with core operating margin up by 90 basis points.

Our return on invested capital in ice cream has increased by more than 3 percentage points over the last two years and now sits at a much more attractive 15%.

In tea, we have had good growth in premium segments, more than offsetting a decline in the more commoditized parts. As more of our portfolio shifts towards higher growth areas, we can expect the growth in tea to accelerate further.

Now looking at our underlying sales growth for the first half-year by region, it continues to be driven by emerging markets, up 8%, with nearly 3% from volume.

Volume growth was strongest in South Asia and Southeast Asia, regions where price growth has recently been subdued compared with the historic norms.

By contrast, in Latin America, growth is all from pricing. Argentina alone contributed around 100 basis points to total Unilever price growth. As expected, consumption in South Latin America is now contracting and our volumes were down in the second quarter, though by less than the market as Paul touched on earlier.

In North America, we saw growth of just under 1%, mostly from volume and close to the level of market growth.

In Europe, we have sustained solid volume growth of close to 2%, but this is again offset by price deflation to leave underlying sales virtually flat.

Overall, underlying sales growth of 4.7% for the first half included 3.2% from volume and 2.5% from price. The pick-up in pricing in the second quarter to 2.8% comes from a little less deflation in Europe and some improvement in pricing in Asia from the historically low levels of the first quarter.

M&A increased turnover by 0.7%, largely through the acquisitions of the prestige skin brands.

Currency translation reduced turnover by 7.6%. If exchange rates were to stay as they are today, we would have less drag from emerging markets in the second half of the year but, of course, a new headwind from the weaker British pound.

For the year as a whole, the total currency headwind would be around 5% on turnover and a little bit less than that on EPS.

Core operating margin increased by 50 basis points. Gross margin was up by 80 basis points. The main drivers were supply chain savings and improved mix from margin-accretive innovations.

Commodity costs continued to be benign in hard currency terms, but with aggregate inflation in local currencies, driven by devaluation relative to the US dollar, which is particularly acute in Latin America.

Brand and marketing investment has increased by more than EUR2 billion over the last seven years and this is supporting our market share gains across all of our four categories.

In the first half of 2016, we sustained the absolute in-market investment at last year's level. As a percentage of sales, brand and marketing investment was 50 basis points lower against a relatively high comparator last year when it was up by 50 basis points.

Overheads increased by 80 basis points, and there were three reasons for this.

Firstly, in both 2014 and 2015, we had gains from changes to pension plans. This year, we've a much lower gain from the pension plan changes.

Secondly, the newly-acquired prestige brands have very different cost structures to our traditional model. They operate with a higher level of overhead costs for running therapist education centers, beauty salons, and so on. These help to build brand equity and so fulfill some of the role that brand and marketing investment plays in the traditional model. There's an offsetting benefit in gross margin, and so no material impact on core operating margin overall.

And thirdly, as we began to implement the Connected 4 Growth changes, we incurred a slightly higher level of restructuring charges than last year. This will step up further in the second half of the year.

Core earnings per share increased by 7.5% at constant rates of exchange. And at current exchange rates, the increase was 1.3%.

Operational performance, which is the combination of growth and margin, contributed 8.2%.

The impact of minority interests increased as we generated higher profits in countries like India, Arabia and Egypt, resulting in a drag of 1.6% on EPS.

Strong growth in ready-to-drink tea is producing increased profits from the Pepsi/Lipton joint venture, and this, together with the revaluation of one of our non-current investments, offset higher finance costs.

The core tax rate was 26.1% in line with last year, and within the range of our medium-term guidance of 26% to 27%.

And currency movements had an adverse impact of 6.2%.

Free cash flow was EUR0.8 billion, including the effect of the usual seasonal increase in stocks and debtors. It was EUR0.3 billion lower than the first half of 2015, following the exceptionally low working capital position when we exited last year.

As we've said before, rather than looking at working capital at a single point in time, a much better guide to progress at the half-year is the moving annual average, and this improved again from negative 6.1% of turnover at the end of last year to negative 6.6%.

Capital expenditure was slightly lower in the first half. For the year as a whole, we continue to expect it to be well within our medium-term guidance of 3.5% to 4% of sales.

Net debt at the mid-year was EUR12.6 billion, an increase of EUR0.8 billion compared with the same time last year, following the acquisitions of the prestige brands. Over the last six years, net debt has increased by EUR5 billion. This mainly reflects an investment of EUR11.5 billion in acquisitions, be it businesses, minorities, or the Leverhulme family rights, compared with net proceeds of disposals of EUR3.8 billion.

Paul summarized earlier the strategic rationale for the acquisition of Dollar Shave Club which we announced yesterday. The deal is expected to complete during the third quarter.

The net pensions deficit has increased by EUR1.5 billion to EUR3.8 billion. This is a result of the further reduction in bond yields used to discount liabilities, including the initial impact of the Brexit vote. Bond yields are likely to remain low, or even lower, for some time to come.

And with that, let me hand back to Paul for his concluding remarks.

Thanks, Graeme. So let me wrap up briefly.

Our priorities and outlook for the year remain unchanged. We continue to expect underlying sales growth in the 3% to 5% range. USG in the second half, however, will likely be lower than in the first half.

The comparators are getting tougher, particularly in the third quarter, which we lap last year's strong ice cream sales. And in Latin America, we actually expect market conditions to get tougher before they improve.

There's also no change to our guidance on core operating margin. This is for another year of steady improvements similar to the improvements we have delivered in each of the last few years.

We expect it to be somewhat front-half weighted this year for two reasons once more: firstly, because brand and management investment is likely to be up in the second half of the year; and secondly, whilst we start to realize savings from our zero-based budgeting and Connected 4 Growth programs, we will also have to deal with the higher restructuring charges that will be absorbed in the margin.

So in summary, over the last eight years, Unilever has become a much more robust and resilient company. The first-half results, despite challenging market conditions, again demonstrate this.

The consistent delivery has underpinned a 64% increase in dividends over the last seven years, and it's the consistency of performance over the long run which is increasingly valued in what is becoming, unfortunately, an increasingly volatile and uncertain world.

We are taking the next steps to ensure we continue to create long-term value for our shareholders in the years to come. We continue to roll out net revenue management to optimize pricing and realize new purchase locations.

We continue to eliminate costs with the zero-based budgeting to generate fuel for profitable growth and we will fast and rigorously implement Connected 4 Growth. This will be another important step in building resilience into our business model. It will increase our agility, unlock the trapped capacity, and help us better adapt to a changing world by becoming both more global and more local.

And with that, let's move quickly to taking your questions. Thank you very much.

Thank you, Paul. (Operator Instructions). Celine Pannuti, JPMorgan.

My first question is on pricing. It seems that there was less price deflation in Europe and you mentioned as well a pick-up in Asia. So what is the outlook for, you think, these two regions? Because I would presume that we will start to see a [ceiling] of pricing that was [implemented] in Latin America last year; and if you feel comfortable with around 2% pricing for the year. I think that you had alluded to that in previous calls.

My second question regards to your commentaries on the savings initiative. Having done all the groundwork over the first half, what is your comfort level of when you say at least EUR1 billion? Around or above that number? And also, the step-up in restructuring charge, is there a way you can quantify that step-up; and as well, how long that step-up will last. Because I would presume that would probably be a one-off step-up for the coming, I don't know, half. But then, after we [phase] that, we should come back to a normalized level. Thank you.

I will ask Graeme to give you a little bit more granularity on the savings, because obviously, he is a key engine of helping us deliver that with the intensity that we have become accustomed to from Graeme, so absolutely key.

On the pricing, as you've seen -- I'm just looking at the numbers, it actually picked up a little bit from 2% in quarter 1 to 2.8% in quarter 2. But frankly, I wouldn't really be that granular on a quarter-to-quarter basis. We think what we will see is slightly less deflation in Europe, more pricing in Asia, no change in Latin America.

The outlook that we have on pricing is cautious on pricing for the rest of the year. In weak markets that we see in many of these emerging markets, price increases will still be difficult. But where we see costs going up, take for example the UK with the enormous currency devaluation we've seen in the British pound, we will look at pricing.

And elsewhere, our price growth is likely to drop, if you want my best guestimate, as we lap last year's increases. So don't expect too much from our price components moving forward. Your estimate of what was our previous guidance, I imagine of around 2%, sounds still more or less right to us.

What will get tougher is the volume comparison over the second half. As I alluded to in my introductory remarks, especially quarter 3 where we had an enormous ice cream sales, this was a record way beyond what we've done. And then I don't expect Latin America to get easier either, where we have a weaker second half.

So that's why we want to guide you to a little bit more reasonable growth over the second half than the first half, and bringing our run rate probably for the year, if I may estimate, to about the 4% level is something that we would feel more comfortable with.

And then, with that, let me bring it to Graeme for giving you a little bit more insight into our wonderful Connected 4 Growth program and ZBB.

On the level of confidence around savings delivery from ZBB and Connected 4 Growth, now that we have done the detailed data exercises and really interrogated where we spend our money, why we spend our money, I think we have high confidence now in the EUR1 billion that we indicated in the second half of last year would be delivered by both of those programs through 2018.

As you know, it's a very data-driven exercise and we've had some very senior leaders from around the business looking horizontally, if you like, around cost segments. We call them cost segment owners. But these are big jobs and having that data and the insight that the ZBB work has brought to us has been very insightful.

Within that, the critical question, of course, because it's not -- as we've indicated, we won't expect everything to fall through to the bottom line. Part of this will be a reprioritization and a reinvestment of where we spend our money and, of course, it covers both overheads, BMI and supply chain costs. So really, we are looking at all facets of the P&L.

But we have high confidence that both Connected 4 Growth and ZBB will deliver the EUR1 billion that we indicated.

Now over what timeframe? Well, as you'd expect, it's a couple of years program, but if we look out over the course of this year and next, and in terms of the restructuring investment to get there, we want to manage this and accommodate it within our normal delivery of profitability at the sort of levels we've been delivering over the last couple of years and we will continue to manage things that way and accommodate that.

But against our normal average restructuring of about 100 basis points, maybe we'll now be plus/minus 20 basis points, around that range; that's how we would look to position our restructuring investment.

Two quick comments. You need to do these things because it's a tougher environment and to continue to deliver the same results is, I think, a message that Graeme gives and I would certainly agree with that; it's part of working harder to be able to do the same.

And the other thing I wanted to point out is the two biggest spending buckets that we have is the whole pricing investment bucket that we are attacking with net revenue management. And the other biggest bucket we have is BMI. So from the zero-based budgeting, we expect most of the savings actually to come out of indirects partly, but out of BMI. So you will see in the future more BMI efficiencies into our model.

Thank you.

Eileen Khoo, Morgan Stanley.

I was wondering if you could talk a little bit more about your ambitions, medium term, for the Dollar Shave Club. You talked just now, Paul, about increasing scale. Would you therefore consider acquiring more assets, including manufacturing facilities in the shave category in due course? Or are you thinking more about using this business as a platform to push growth in other categories?

What do you think is the risk of pressure to the profit pool given that one of the attractions for consumers of this business is the low pricing?

Obviously, I had guessed with Graeme that the question would come on the Dollar Shave Club, so I won my bet for some reason (laughter). But let me just state again very clearly. The male grooming market, and you have to see this first and foremost on male grooming, when you make an acquisition like this, you have to say, is this a segment you want to be in. And the segment is male grooming; that's a $40 billion segment and growing quite nicely.

We have twice our share there than our direct competitor, if you take shaving out of it. So we are very well placed and it is more than a shaving model itself. So we feel very good.

The second reason that we like this is because the fast emergence of the subscription models. Big companies like us, like we've seen also with our competitors, have a hard time establishing those things because of the culture, the knowledge; it's just simply not there. Not a good thing; not a bad thing, as long as you recognize that. And we're able to acquire the knowledge that they have built very quickly and undoubtedly, we'll apply it also on other brands.

And then lastly, this is a very attractive proposition that has been built, growing very fast with a very loyal following amongst the millennials, which is equally attractive to us.

So there are many elements that are good in this acquisition, and that's probably why the market overall reacted positively.

Now what we need to do is look at further building this in the US because that's, obviously, the core of the business we've acquired and where we have advanced the most, but we'll also look at other expansion opportunities beyond that; and then leveraging the knowledge that we have acquired here across some of our other businesses.

I can just think of our tea business. I can think of our prestige business and other things. So I think overall this is one acquisition that will be seen favorably in a few years' time. At least I sincerely hope.

Now we've also, over the last eight years, had a consistent acquisition strategy of looking at these bolt-on acquisitions, getting to the EUR2 billion to EUR3 billion in total. That has transformed our portfolio, personal care being a great example of that.

But the main transformation, I will honestly point out again once more, has come from consistent above-market organic growth. The best way that we can still build value on our books, also for our shareholders, is by growing ourselves and that will be continue to be our priority whilst we will look at, perhaps, some smaller bolt-on acquisitions like you've seen with the Dollar Shave Club.

What we are going to bring in in terms of efficiencies and what we do in-house and outside is a little bit of a scope of our studies now, but we also see that we can certainly help bring some efficiencies and product and quality and optionality to this model that will help us as well.

So we think it's a key addition to a strategy that we've carefully laid out in front of you and that we're carefully implementing and, obviously, we feel good about.

The razor market itself is, obviously, a part of that; we don't deny that. This is a good way to get in without having head-on competition. But I do want to point out, that market is about EUR4.5 billion in retail sales and we currently don't have any of that. So, for us, it's all incremental and there's a lot more to go for.

Thank you.

Alain Oberhuber, MainFirst.

A question regarding emerging market, more specific, Latin America. You mentioned, Paul, that things are getting worse before they get better. But do we see already a bottoming out in some of these smaller countries? Or should we expect a difficult H2 as well as difficult H1 next year?

Well, Alain, thanks for issuing your report. I have to compliment you. You're always the first one to issue and you have your three questions in there and this is probably one of the three questions, so I appreciate the Swiss efficiency with which you work.

We definitely see in the second half a worse trading environment in Latin America than the first half. We want to be unequivocally clear about that. Brazil is in recession. I'm actually going there in a few weeks' time, but it has high devaluation of the currency, an incredible drop-off of consumer demand, the market is negative. And it's more negative than people think, unfortunately.

Now we have a very big business. We continue to drive our innovations there: Baby Dove, our [auxiliaries] of OMO a great example, but also what we're doing on Sunsilk or on deodorants. So we are actually growing in Brazil. But it requires disproportionate effort from our organization, and the trading environment is actually getting worse. We see pressure on some of the retailers, financial pressure and other things. So we have to be very careful.

Argentina, I was there two months ago, and had extensive discussions with Macri, the new President, and many others there. And here again, we've seen a significant step devaluation of the peso. We are obviously having more currency, but it's at a significantly reduced level. The country has to really go through a significant economic adjustment. Again, we see the markets being negative for the first time since I'm here at least. But we are growing share; a testimony to our organization once more and our enormous presence there.

And Mexico, the economy is slowly gaining traction. I think it's probably a little bit of the brighter light, but disproportionately smaller for us in terms of the business that we have there. But it's not really to write home about yet.

So consumer demand is contracting in the major markets and consumers are down-trading in these major markets. And volume growth definitely has turned negative there. In fact, the first half we have zero volume growth in the numbers from Latin America, by memory. I'm looking at Graeme, who shakes his head. So that is true. And we think that you will see low to mid single-digit decline in the second half. So that's what we have to deal with.

We have our plans, we have our innovations. We have to do some pricing still. But it will be tougher over the second half than the first half. After that, 2017 is difficult to predict. I always think we hit the bottom, and then somehow the politicians are able to go a little deeper. I hope that in Latin America that we start to see again more positiveness as of 2017.

Thank you very much.

James Targett, Berenberg.

Two questions from me. Just firstly on North America. You had a pick-up in sales growth in the second quarter. I just wonder if you can give some color on the sell-in versus sell-out there, because I know you were flagging some destocking over the last couple of quarters. I wonder if that situation has improved.

And then, secondly, just on the margin. Graeme, maybe if you could give some color on the impact of the pensions you mentioned on the overhead costs and also the food and Europe margins. Thank you.

I don't want to go into destocking or not, because, frankly, it's hard to read. And when the numbers are poor, we say it's destocking. When it's better, we say we have a great business and initiatives. I'm personally not very keen to go into that discussion.

The reality is that the economy is growing and the market is growing in the 1% to 2% range. We are currently putting in a performance of 0.7% over the first half. So we are slightly disappointed by that. I don't want to call it differently. We are still in the transformation of the US. We have to completely recapitalize our industrial base.

And what we see is some very strong things emerging in the areas that we focus on. Ice cream: we are now outright market leader. We have very good strategy. It's out of home, in post there, as well now, in line with the global strategy. And it's starting to pay out.

We also launched the deodorant sprays, the dry sprays, which are working extremely well. Brands like Hellmann's have a very strong growth rate. So there are areas that we feel comfortable about. Our hair care business has obviously propelled from a number three position seven, eight years ago to the number one position now.

So we think there're a lot of things in the US that we are doing right to put the basics back in place for continued, long-term growth. But we have some downforces. Our spreads business is sizable, and that's a downforce. And our tea business, which had been grossly underinvested for years and was commoditized, is obviously pulling us down. With the Pure Leaf launch now and the other actions we've taken, we're starting to see that trend being reduced. And as you have seen from Graeme's talk, the rate of decline in spreads has also slowed down.

So we think we're on the right track but we should see the US performing more closer to the 1% to 2% range than the current 0.7%.

There undoubtedly will be continued efficiency drives by retailers in their stock level. I would find that quite normal in this low growth environment, and so would we. Graeme has separately talked about working capital; how from being second best in class in the industry, the way I look at it, we are still able to put the targets higher and deliver more on our own working capital. And it's fair to say that our retailers should be doing the same thing. But the answer to stronger growth in the US is in our own hands.

Then you had the other thing.

James, your question on the margin and the impact of pensions, etc., just going into that. So the 80 basis point increase in reported overheads. If you dig into that, the lapping of the gains on the pension plan changes in Europe in 2015 is roughly half of that. And about the other half comes from the impact of the different shape in the P&L shape, the balance between overheads and DMI, if you like, in the prestige businesses, which we called out in the presentation. And a slightly higher level of restructuring charges.

But about half or just over half, in fact, of the 80 basis point movement in overheads, comes from the European changes.

Now, as I think you said, rightly, in your question, you do see that disproportionately in two parts of the segmental results. First of all, you see it in Europe, where the COM, the reported profit was down 70 basis points. But you also see it in foods; down 70 basis points, because of the higher exposure of the foods business, the bigger footprint that that has within Europe.

The thing I would say; that if you take the impact of that out from foods in particular, then the COM, the core operating margin in Europe -- sorry, for foods -- would have been flat in the first half, which is bang on where we want to be, strategically, with the acceleration and growth rate, which we talked about in the presentation.

Great. Thanks very much.

Warren Ackerman, Societe Generale.

Also two questions. The first one is can I go back to market growth? At the Q1 stage, you said, I think, Paul, no category growth in either developed or emerging markets. And today you're saying that market volumes have slowed further in the quarter. So should I take it then that aggregate category volume growth is now negative? And then, specifically, can you talk about what you're seeing in personal care sub-segments in Europe and North America?

And then, secondly, just back on the question on spreads. Paul, you said that North America is getting a bit better, which is encouraging, but Europe's still challenging. I was wondering whether you can quantify the decline rates. And are you disappointed that the initiatives in Europe are not making much impact? And I think, Paul, you said that this is the year of reckoning for the business. We're at the midpoint of the year. Just interested to hear what your overall assessment of the progress in spreads is. Thanks.

So in terms of the market growth, we talked about the softening that we've seen in the different parts of the world, especially Latin America.

In Europe, if you want to go -- because on market you have to go a little bit more granular, and we measure the markets that we are in, by the way. There are undoubtedly other markets that might do differently. But if you take Europe, the market decline now is close to 2%. And that's driven, broad base, by price deflation. You see that in most of the markets in Europe. A little bit better in the northern parts of Europe than in the southern parts, but it's there. And market volumes are certainly now negative.

In North America, I would -- we guestimate that the range of growth is between 1% and 2%, with volumes actually slightly down, but driven by price growth. And if you look at that price growth, it probably comes from what you identified, which is the premiumization of personal care.

Latin America we talked about. And Asia, we just published our Indian results. They had a terrible rural performance, because of the absence again -- climate change is hitting there as well, and the monsoon stayed out. And when they come they're too heavy. So we see the urban parts doing well, but the rural parts staying behind. So there we've also see volume growth going down.

China is a story in itself. It's very hard to read the Chinese market. I think you'll be hearing a lot of our other colleagues, when they publish their results, to talk about the Chinese market. Because the rapid shift to e-commerce is confusing, and the rapid move away from the Tier 1 cities, to the Tier 2 and Tier 3 cities.

You can go to China now and really see empty stores, when you go into hypermarkets and supermarkets, that we've not see before. So we think that growth has significantly slowed down, and again, everybody has to draw his conclusions from that.

The only bright spot I would say, was in the total of Southeast Asia, where we do see mid single-digit growth. Countries like the Philippines or Indonesia actually are stronger than I would have thought. So that is the positive bright spot.

So if you translate that on a global level, it's hard to make these efforts work. But we certainly would say at best there is flat volume growth, if not slightly negative, in my reading for the markets that we are in.

In the PC sub-categories, you actually see a premiumization happening, and our prestige businesses are doing well, our deodorant business is doing well. In fact our hand and body business is coming back quite nicely. We just had a review yesterday, with the Board, on our hair care business, with Laurent Kleitman and Alan Jope and that is a star performer for us.

So we think our personal care business is doing well, and actually growing share. And you see in these results as well, that we just published, that after home care once more, our personal care unit is our second fastest-growing unit. Again, above the Company rate.

If you then come to the tough ratio of spreads, and I'm glad you brought that up, North America, we're starting to see some of the positive signs. Because we have the broader implementation now, of our product improvements there and are able to -- we have built some new capacity, and we are able to supply the market. We were not able to fully supply the market in that transition. And that is helping us undoubtedly.

And then in Europe, there are actually good signs; although Europe is a challenging market in total, our shares are flat to up over the last period. So it's one indicator that what we are doing is actually good. In the US also, our shares are starting to move up there as well.

One of the good indicators is Flora in the UK, where plant-based -- obviously all of our margarine is plant-based. Consumers are getting more interested into plant-based nutrition. We have been slow to put that word out there. We have had a major re-launch now with Flora in the UK, on the plant-based re-launch, and the initial indications are positive.

Then at the same time obviously, we're trying to manage this business very rigorously, for cash flow. Not to go into too granular details, but by running it separately, like we're doing now, we not only are the decisions faster, as I had predicted, but we are also running it with a far leaner organization.

I think we've taken out about -- this is a rough guess, because I have to go through the detailed updates. But we've taken out EUR70 million, EUR80 million that allows us to continue to take that cash flow and run this business strongly, without having the shareholders pay for this.

So we continue to stay the course. We think that the actions that we're now taking are the best we can take in the interests of our shareholders, at this moment. But we continue to look at all options.

Thanks, Paul, very helpful.

Jonathan Feeney, Consumer Edge.

Paul, you mentioned the growth in China e-commerce, and I guess it's fascinating what's gone on in that market. It's almost as if the Chinese consumer maybe, is skipping a step in the evolution, at least in the way we think about purchasing that goes on in western developed markets.

Can you talk about how your approach is different to managing that e-commerce growth, and maybe transition in some of those markets, than some of your competitors?

And secondly, when you look at the Dollar Shave Club purchase, is there any thought that maybe you're getting ahead of some of those changes, maybe that are happening in - the Chinese consumer maybe, happening over the next five to 10 years in other markets, emerging and developed? Thank you.

Yes, Jonathan, that's a very good question, and very much on our minds as well. And I wish I could give you obviously the right answer, because it's moving so fast that first of all, we spent a disproportionate amount of time on educating ourselves. And it's frightening, the speed at which this is changing. Just like they leapfrogged the landline and moved to mobile phone. You now see the millenials.

It's interesting if you go to China one day, just let them show you all the things they can do on WeChat, and it's -- you take Amazon and YouTube and Twitter and Google, all together in one app, and Paypal and whatever, it's incredibly frightening.

None of the millennials goes to a store any more. So the speed with which this is changing is mind boggling. And I think not many people predicted this. So the first thing you have to do, as a company, is to be sure that you are educating yourself, and the people. And we are spending a disproportionate amount of time on that.

One of our main roll-out things with our marketing community is what we call digital 2.0, and Kees (inaudible) is obviously leading this. And he's on the advisory board of many of the leading companies. We're preferred partners to work with Alibaba, and Tencent in the US, in China as well. So we're trying to keep up with it.

And I think the same thing is for our competitors. 13% of the retail sales is now already in e-commerce, and our estimate is that it might be growing with about 20%.

We are outgrowing this. We've put in a significant organization. Globally we are 600, 700 people now, just totally focused on e-commerce. We are continuing to ramp that up. We are getting people in from the outside as well, to help us accelerate that.

So we think that our approach that we're taking in China is right, adapting our products, making them e-commerce ready; introducing new products on e-commerce only; strengthening our own resources and capabilities to be able to do that. And as a result we have a significant market outperforming growth rate. But sometimes you feel that what you can gain there right now in China, is not compensated with the decline in other channels.

I am thinking about this, and we're diving deeply into this. But I think because of the phenomena of the e-commerce, the rest of the retail is struggling. And although they're still 80% of the people buying in the rest of the retail, if you look at these statistics, they are drastically adjusting their stocks and they're drastically looking at the business models, and their financial exposure.

Because it's the gearing that they're missing. It's this incremental sales that was giving them the profitability that is disappearing. So the dynamics will be interesting and we need to closely follow them, but they will rapidly change in the Chinese market.

You need to work much harder to fish where the fish is, and as I've mentioned before, you need to take different fishing rods. One of the reasons the Dollar Shave Club is attractive and why Michael has done such a great job creating this company is indeed the knowledge of the subscription models. And we will be certainly looking at that as well, for the Chinese market.

If we would have done that internally, by re-educating ourselves, I'm not sure we would have succeeded. But what I'm sure about is it would have taken us too long and the market would have moved somewhere else again, already. So we have to get used to buying in that knowledge, and dealing with the higher level of ambiguity perhaps, than that we've seen before.

Now the good thing on this whole thing is the other side of the -- the flipside of this equation, that our Chinese business is still relatively small, compared to some of our bigger competitors. And we are able to manage the business. We still have a lot of other brands to introduce and grow.

So I expect China to continue to be a contributor, although we are going through a little of a flat period, right now. I'm not meaning that as an indicator to be worried about. I think in China we should be able to grow mid single digit in this environment and we will continue to work on that. So I hope that answers a little bit the question, Jonathan.

Very much, thank you.

Charles Pick, Numis.

Just two questions, please. At the Group level, I think you said exiting Q1 you were growing almost 60% in terms of market share growth for the Group's various operations. I wonder if you can update that percentage, please? It sounds as though it's probably increased a bit.

And at the Q1 stage, you were indicating that the FX debit was about 50% via the Brazilian real and the Argentinean peso. Was this a similar percentage, please, for Q2?

Yes, Charles, the first one I can say it's about the same. It's not up or down. So it's about the same. We have about 60% of our business building share and overall building share.

On the foreign exchange, Charles, you're pretty much spot on, about 50% from Brazil and Argentina. In fact, if you [weigh] out a bit and go -- the biggest impacts of Brazil, Argentina, South Africa and India, and all-India, they sum up to about 4.5% of the 7.6% that we saw on the top line.

Good. Okay, thanks very much.

Alex Smith, Investec.

Charles actually stole my question on market share, but I was wondering if you could say a little bit on that 60% number, how that might vary across geographies and categories, just to give us a rough idea where you are, I guess, relatively outperforming and relatively underperforming.

And then maybe just a follow-up on India. It's clearly a big market for you. I guess the market growth rate there has continued to slow down, and I think you pointed to it being rural-led, weather impacts. I guess you've got some commodity deflation there as well.

But I was just wondering, are you seeing some unhelpful competitor behavior in your categories? I guess I'm just surprised that the category growth rate continues to track below GDP growth rates and I guess some other FMCG categories are doing a little bit better at the moment. Thanks.

So let me go first to the market shares once more, and add a little bit more granularity.

If you look at the overall market shares, it's mainly driven by the emerging markets. The developed markets are about flat in market share. Both the US and Europe are about flat. So I would see that as the bigger picture. We are, obviously, gaining share in more businesses than we're losing. The main drivers of that is personal care outgrowing the market. So that is a key thing.

If you want to go even more granularly, it's deos again where we are doing well. It's hair. But actually also skin cleansing is back; it was a category that was on the edge of that; it's now positive. So we feel good about that.

Home care, we continue to drive competitive share gains; actually, interestingly, in both laundry and home care. And whilst we had promised you a 10% margin on that business by 2020, we're actually reporting already now a 9.8% margin, so our strategy is also working there at the same time as we are growing share.

On refreshments, we have a good story on ice cream, as I've mentioned before globally. We are down a little bit still on tea. Although we're growing share in the premium segment, we have that drag on the commodity segment.

And in foods, we actually gained share overall in savory and dressings. As I mentioned before, spreads I would call it flattish. There's a little bit positive news, as I said before, on spreads, but it's overall flattish.

So more categories growing with one or two of the spots that you can imagine where you have to work on. So that's on a granularity on shares if you want to.

I'm actually less enthusiastic to spend too much time on global shares because they are calculations of a coverage of news as well, especially in the emerging markets, that sometimes might be hard to read. So I always look more at the overall growth rate of these categories versus what these overall markets are doing. And I think it would pretty much follow the picture I just laid out in front of you.

If you look at India itself, the macroenvironment is mixed. I was there not long ago again. I'll be there with the Board, actually; we have our Board strategy meeting this year in India. The GDP growth is about 7% officially; some people think it's less. Inflation definitely is under control but there is subdued consumer sentiment, especially in the rural areas where we have seen, actually, depression now for three quarters already, which is obviously a big part of our business and a competitive advantage with our enormous distribution reach and with our products. So you have to take the upsides of that and the downsides a little bit.

Volume growth is still good; 3.5% there. But pricing is flat and you've alluded to that already. In personal care we actually have modest growth but we have negative pricing. A very good performance on hair care; a good performance on skin care by memory; oral care we have a competitive battle going on but we have initiatives entering the market there. Home care is very robust. On laundry, we have no price growth; we have competitive activity that is perhaps a little bit driving that pricing thing but our premium segment, Surf, is doing well. Our fabric conditioner, Comfort, is doing well.

On refreshment, as you know, we have a good refreshment business there. It's tea being the bigger one. We have strong growth on tea. We have, in foods now, a business that is significant; this was a home care and personal care business. It's increasingly also becoming a good food business with growth in dressings and savories. So our share price performs well there.

I know the announcement they made was probably a little less on the growth than what people expected, but that's a quarter that I'm not getting too excited about. But it is a market that is probably not as buoyant as it was a year ago if we would have had the same discussion.

So I hope that gives you a little bit -- have we answered your questions right? I think that was it, no? Did I forget anything, Alex? No.

No, all good thanks.

Thanks. So let me just thank you guys, because I think we're coming to the end of it, so I just wanted to wrap up.

The first thing I want to do is thank you again for your interest. I know that is really appreciated by us, and your questions also help us. I'd also like to thank you for your support. I hope you will have some time off for the holidays with your dear ones, and recharge the batteries.

We have a very full agenda. I think the change agenda happening right now in Unilever is bigger than I can imagine it has been for a long time over the last few decades; implementing the Connected 4 Growth; at the same time net revenue management; zero-based budgeting keeps us incredibly busy but we will not drop the ball.

And it is absolutely needed to be able to continue to give you this 4G performance in an increasingly challenging environment. It's a -- [any doubt] in my opinion, in my modest 35 years or so in the consumer goods industry, which I'm sure you will beat that collectively, it's one of the toughest environments that we're operating in. Despite that, I think we can continue to promise you that we will be at the 3% to 5% range with a little bit lower top-line growth over the second half, and we will continue to be in 20% to 40% range on our core operating margin. So where consensus is right now, we are fine.

If you run too far ahead of yourselves and you think that we could better on core operating margin, we actually don't disagree with you, so don't get excited. But we will have to use that money to invest in restructuring to accelerate the implementation on the Connected 4 Growth program. So long term is our mantra and long term it will be, and despite again once more the challenging environments, we will make this another year of delivery.

Thanks. Enjoy the summer holidays and hopefully talk to you soon. Thank you.

This conference has been recorded. Details of the replay can be found on Unilever's website and will be available shortly. Thank you.