Unilever Q1 2010 Earnings Call Transcript

123jump.com Staff
03 Jul, 2010
New York City

Sales rose 6.3% to $10.1 billion an net income rose 33% to $973 million or 34 cents a share. Underlying volume growth for the quarter accelerated to 7.6%. Gross margin was up by 240 basis points. Underlying operating margin This improved by 60 basis points.

Unilever plc ((UL))
Q1 2010 Earnings Call Transcript
April 29, 2010 3:00 a.m. ET

Executives

Paul Polman – Chief Executive Officer
Jean-Marc Huet – Chief Financial Officer

Analysts

Warren Ackerman – Evolution Securities
Sara Welford – Citigroup
Celine Pannuti – J.P. Morgan
Martin Deboo – Investec Securities
Jeffrey Stent – Exane BNP Paribas
Jeremy Fialko – Redburn Partners
Harold Thompson – Deutsche Bank

Paul Polman

Good morning, everybody and thanks for joining us in this first quarter call for the Unilever results. As was mentioned before, I''m actually joined by Jean-Marc Huet, our new Chief Financial Officer and James Allison, our Head of Investor Relations. Before I really dive into the results, let me just briefly mention that is a pleasure to have Jean-Marc in the company.

Jean-Marc has been here now about two months, but I have to say hit the ground running. He obviously comes in with a tremendous track record from his previous experience. And I''m already convinced that he will also make an enormous difference to the company as we move forward on our strategy that we''ve all set out together. Before Jean-Marc actually takes us through the details in a minute and looks at the performance in the quarter and the different elements, let me share with you a little bit my own reflections. And certainly we''ll keep the talk small, short and allow for ample Q&As at the end of it.

Before we dive in, let me remind you again once more of the priorities that we have for 2010 and these are very simply, to drive profitable volume growth ahead of our markets. No different from what we successfully did in 2009. To increase again the underlying operating margin steadily and sustainably, very important. And then last but not least, again in line with what we did last year, to generate a strong cash flow and obviously to lower the average working capital that comes with that.

Now, the most important thing obviously is to be able to do all this whilst at the same time putting things in place to ensure the long-term health of this wonderful company. Against these priorities, I think we have made solid progress and again, a solid start this year, as you''ve seen by the numbers we just published, in an environment that continues to be challenging.

We are certainly well on track to implement our strategy and well on track actually with the results we''re getting but the environment, as you read again yesterday and this morning in the papers, especially here in Europe and some of the places, is not that easy. So before I give you my perspectives on the results, let me just hand over to Jean-Marc for a second who will take you through some of the details on the quarter one performance. Jean-Marc.

Jean-Marc Huet

Thank you very much, Paul and good morning to everybody. I''m delighted to be participating in this, my first results call with Unilever. I have met a number of you already and I look forward to meeting many more of you in the months to come. First, let me draw your attention to the disclaimer relating to forward-looking statements and non-GAAP measures.

Now, let me begin by looking at our sales performance. Underlying volume growth for the quarter accelerated to 7.6%. With underlying price growth of minus 3.3%, this resulted in underlying sales growth of 4.1%. With the euro weakening against a number of key currencies, the ForEx effect was positive at plus 2.3%. Turnover at 10.1 billion euros, 6.7% up on the same quarter last year.

Quarter one marks an important turning point in the evolution of our underlying sales growth, the first sequential improvement in our growth rate since Q3, 2008, when pricing peaked. Let me take a moment to look at the recent trends in pricing. I will then look at volume growth in a bit more detail and at the innovation that is underpinning our performance.

In-quarter price growth was flat for the Group overall. We see an improving trend in the Americas despite high levels of price competition, specifically in Brazil. In Western Europe, the overall position was stable, with improvements in some markets but substantial price competition remaining in others.

In Asia, Africa, CEE, we have adjusted prices where necessary to respond to intense price competition in markets such as India, China, Indonesia and Turkey. In fact, in these markets volume growth is more than compensating for the additional price investment, a testimony to the strength of our brands. Overall, we now expect underlying price growth to turn positive towards the end of 2010, rather than around the middle of the year as previously indicated.

Now, turning to volume. Volume growth in quarter one was the highest we have seen in many years. Even though the prior year comparator was weak, we are encouraged by the consistent upward trend in volume performance across both regions and categories. In the Americas and Asia, Africa, CEE, volume growth has been increasing since the start of 2009. In Western Europe, the trend is similar, but at a lower level.

Central to this strong growth momentum is innovation. We are bringing to market bigger and better innovations and rolling them out faster. The scale of this has struck me as I''ve started to visit our business. For example, in Jakarta, recently I learned about the 67 new launches we will bring to the Indonesian market this year.

Let me build on this theme with some more examples. In HPC, we are continuing to drive powerful innovation through the Dove brand. In hair, for example, the Damage Expert range of shampoos and conditioners will build a position based on better hair therapy solutions. It is also a good example of innovative use of new packaging design techniques. We will push this range into more than 50 markets by the end of the year, much faster than we''ve done before. We have continued to roll out Dove Men Plus Care throughout Western Europe and North America, with encouraging early results.

And in India, we have re-launched our Wheel laundry brand. The improved formulation is delivering strong results despite aggressive price-based competition. The chart just shows a few of our recent innovations. There are many more.

In Europe, for example, we have launched Signal Anti-Age, the first toothpaste that fights the signs of aging, an important development in better oral care. Axe Twist in Deos across the world, the relaunch of Fair & Lovely in India, Lux Shine in Japan and China, the list goes on.

In Ice Cream, Magnum Gold will be launched into 28 markets this year. This is a truly great-tasting product. In Savory, we are supplementing our range of restaurant quality meals with the launch, this month in April, of the PF Chang range of frozen Asian dishes in the U.S. We''ve also introduced a ''two-in-one'' range of Knorr Meal-Makers in several CEE markets. In Dressings, we are continuing to roll out Hellmann''s mayonnaise with cage-free eggs throughout Europe and North America.

We have also launched some of our key brands into markets where they are not yet present. In the first quarter 2010, we introduced Cif, Lifebuoy and Vaseline for Men into a wide range of our developing and emerging markets. And we''ve also been active in Western Europe.

Domestos has been launched in Italy, and even a brand as ubiquitous as Lipton is not yet in every market. In Q1, we launched in Spain and early signs are positive. All this activity requires investment. As we step up the pace of innovation and roll out brands to new markets, so we''ve responded with more and higher quality advertising.

Our A&P spend was up in the quarter by 220 basis points, despite lower media rates and our share of voice is up across our brand and category portfolio. We now expect full year A&P to be comfortably ahead of where we were in 2009. Not only are we investing more, we are investing smarter as well. Our advertising quality continues to improve. And we are actively embracing the move into new media, with our digital communication spend up 90% in the quarter. So, I have gone through our volume growth, the innovation that has underpinned it, and our step-up in advertising and promotion.

Now, let''s look at the performance across our regions in a bit more detail, starting with Asia, Africa, CEE. In this region, we recorded another strong quarter of volume growth despite intensifying competition. Volume was up by 11.7%, with strong performances especially in markets such as Turkey, China and Indonesia, where the competitive battles have been tough. An encouraging quarter in our CEE business saw a return to growth after a very difficult year in 2009, when markets were severely depressed.

On the chart, we show a couple of examples of recent innovations. In India, we have launched the Sehatmand variant under the Brooke Bond brand. This allows people at the bottom of the price pyramid to buy a branded tea for the first time. And in Home Care, the Radiant laundry powder range with new optical whitening qualities has been re-launched in Thailand as well as South Africa.

Gross margin was strongly ahead with benefits from savings, operational leverage, positive mix, as well as lower commodity costs, this more than offsetting the price investment. Advertising and promotional spend saw another step-up, and underlying operating margin was up 30 basis points.

Turning to the Americas, volume growth reached 6.3% in the quarter. This was led by Latin America where growth was in double digits, driven by a strong performance in Brazil.

North America also had a good quarter, with both the U.S. and Canadian businesses growing volume ahead of their markets. This, despite the continuing impact of the product recall on our SlimFast business in December last year. This incident is now behind us and the brand is back in full distribution.

Innovation activity in the Americas also included the launch of the Breyers Smooth & Dreamy range in North America. The recent re-launches of Surf and Skip in Laundry are progressing well in Brazil, Argentina and other Latin American markets. Despite a substantial increase in A&P, underlying operating margin was up by 40 basis points in the quarter.

Now, let me turn to Western Europe. Volume growth here was at 4% in the first quarter, well ahead of the market. This was led by the U.K. and Benelux, but was broad-based with contributions from all major markets. Innovation also played a major role in Western Europe.

In Skin Cleansing, we have launched the Dove Visible Care range of body wash. This makes use of patented nutrium technology and follows a similar launch last year in North America. We also relaunched ProActiv in Spreads and introduced the new TIGI Curlesque collection of hair products.

Gross margins were higher, with the benefits of the European supply chain set-up coming through strongly. A&P spend was also higher. But, with lower overheads from the One Unilever restructuring program, underlying operating margin was up by 130 basis points.

Let me now move onto some key aspects of our first-quarter financial performance. Gross margin was up by 240 basis points, and has now returned to the level prevailing prior to the commodity cost escalation in 2008. Progress was widespread across all regions and all major categories.

Please note our gross margin performance stepped up during the course of last year, 2009. So, as the year progresses, the positive variance we have seen in gross margin performance will lessen.

Turning to commodity costs. These continued to be a tailwind in the first quarter, albeit at a lower level than in Q4 last year. And again, please note that with a number of key input costs starting to trend upwards we expect higher commodity cost headwinds, not tailwinds, in the second half than previously anticipated. However, we expect these to be offset by more favorable currency effects.

So our view of 2% to 3% inflation for the year as a whole remains unchanged. Savings delivery has continued to play an important role in driving our margin development. Savings in the quarter were 300 million, with just over a half of this coming from buying, around 30% from restructuring activity and the balance from local efficiency programs.

We continue to expect savings of at least 1 billion euro in 2010. As we further sharpen our operations in response to the increasingly competitive environment, we are finding new opportunities to take costs out of the system. Restructuring costs in the quarter were around 120 basis points.

We now expect restructuring costs for the year as a whole to be somewhat higher than the 50 to 100 basis points previously anticipated. We had guided towards the higher end of those 50 to 100 basis points. This is before any costs related to the acquisition of Sara Lee.

Turning to underlying operating margin. This improved by 60 basis points. This reflects strong gross margin development, as well as good progress in overheads, which were lower by 40 basis points. This improvement came despite an increase of 220 basis points in advertising and promotional spend.

We intend to now primarily focus on a single earnings per share measure, post RDIs and fully diluted. Going forward, we will adjust out only disposal profits and sizable one-offs. As you can see from the chart, the first quarter saw strong EPS growth, albeit against a lower base from last year. EPS of 0.34 euros represents an increase of 32%, with, importantly, 12% coming from operational performance.

As we guided with Q4 results, most of the non-operational factors that were a drag on earnings in 2009 have now turned positive. Although pension costs and restructuring should remain positive through the year, the other elements obviously may fluctuate. Progress in improving trade working capital continues to be strong. The cash conversion cycle is now 18 days better than a year ago.

In fact, we had negative trade working capital across the Group for the second quarter -- second straight quarter, excuse me. There has been strong progress across the business in better forecasting, improved transparency, and greater rigor in tackling obsolete inventories and overdues. There is, however, still more to be done.

Net cash flow from operating activities was at 0.6 billion euros in the quarter, well ahead of last year. Net debt was 7.1 billion euros at the end of the quarter, up from 6.4 billion euros at the same period last year.

This increase was mainly caused by dividend payments and the adverse impact of currency movements on our debt balance. This particularly related to the weakening of the euro against the U.S. dollar, in which much of our net debt is denominated.

The interest rate on net debt in the quarter was up slightly up at 6.5%, compared with 5.9% in the same period last year. The pension deficit, as defined under IAS 19, was broadly stable at around 2.7 billion euros. Cash expenditure on pensions in the first quarter was around 200 million euros. We still expect full year payments to be around 750 million euros, well below the 1.3 billion euros figure from 2009.

The pension financing charge was close to zero, a reduction of around 50 million from Q1, 2009. Finally, we have announced this morning that the second quarterly dividend of 2010 will be 0.208 euros to be paid in June. This is an increase of 6.7%. On that note, let me return you to Paul.

Paul Polman

Thanks, Jean-Marc. And hearing Jean-Marc talk actually reminded me of there is no better way for a new CFO to get his feet on the ground and into the company by having immediately to announce the results. So Jean-Marc, congratulations.

Let me just briefly comment on these results and give you my own perspective. I think that we certainly read this as the model is starting to work for us and to the credit of the people here in the company, the organization is definitely rising to the challenge.

So I would call this a solid set of results that starts to, hopefully, show you increasingly the signs that our strategy is starting to work. Let me just give a few bullet points of perspective on these results, if I may. And the first one really is on the volume and innovation, as Jean-Marc talked about.

Volume growth of more than 7% is obviously strongly driven by the stepped-up pace of innovation, which, probably is at the highest levels that this company has seen for a long time. And that drives the performance across all of our countries or MCOs as we call them and most of our categories.

Things like Dove for Men, the Men Plus, the Skin and the Deodorant initiatives that Jean-Marc talked about. In Hair Care, the Sunsilk Co-Creations that we''re launching in many places, the Dove Damage Therapy relaunch in Hair. The Knorr Stock Pot that is continuing to be expanded in other countries and fortunately, strongly patent protected. And Magnum Gold in ice cream, another example of this, and the list just goes on.

In fact, we''re in the process of upgrading over 30% of our portfolio, and rolling out the mixes obviously that come with that, much faster into our core markets than ever before. At the same time, we''re also investing back in our products and product superiority, filling in the opportunities that we have in the price pyramid and extending some of our best known brands into new geographies, like the Cifs, the Domestos, the Lifebuoys, the Vaselines and the Ponds.

In fact, here, once more, we have more new brand launches than we could trace in the history of the company. Now all of this again is being fueled by a step up-in the amount as well as in the quality of our advertising. And, yes, the rates are down but we are still up, as you see, in absolute to fuel this growth and we''re getting to the competitive level that we aspire to.

Now, this is building our brand equities, and that''s obviously underlying the growth rates that you''re seeing. That is how we have been able to register double-digit growth rates across Asia, which, by the way, includes for us Japan and Australia. And we have 4% volume growth in Europe, you know better than I how difficult that is.

At the same time, we have the discipline to capture the benefits of volume growth in the form of fixed costs leverage and efficiencies, getting much better at this. Adding to this is the contribution from our continued strong savings program and some commodity cost tailwind. And we are continuing to discover, as Jean-Marc mentioned in his restructuring comment, new opportunities to drive further savings into the company.

Now, this adds up to substantial fuel for growth, which, in turn, again drives our volume. All this represents what I''ve explained many times to you before, this virtuous circle of growth that we are trying to get to, and increasingly getting closer to.

The operating margin improvement in this model will come primarily from mix and margin accretive innovations. The second bullet point I quickly and briefly want to touch on is that we''re actually winning where the markets are toughest.

There is no doubt that competitive intensity has increased, and many of you have commented on that. But it''s also clear that some of our competitors have been referring to stepped-up innovation with a very broad definition.

And, in fact, in some cases the definition undoubtedly must extend to the amount of pricing activity that we see by some selective competitors going on. But we actually welcome this increased pace of competition and we welcome it for two key reasons.

Let me just briefly explain. The first one is what I''ve been saying before, very humbly. We, as a company, have made tremendous progress but we still have some more, more things to do. And with this increased level of competitive activity it actually helps us to accelerate our transformation program to become a more sustainably competitive company, to become faster and to become more externally focused.

So we will use this as fuel for change in the same way as we have actually used the global financial and economic crisis last year as a catalyst to shift this company''s performance. Also, as Jean-Marc has mentioned, where we actually have seen the most aggressive activity, very often pricing-related from one of our key competitors, the market development is actually being stimulated and as a result, we have accelerated our growth.

Let me just give you some example. In China, by the way, a market that is far more developed than India, three to four times more developed in any of the categories we compete in, we actually have gained share in all categories bar one.

Now, we see the same picture in countries like Indonesia and Turkey. I recognize, reading the newspapers as well, that there is a disproportionate attention to India for some reason.

Let me just first put some perspective around that. Unilever has a 52% stake in Hindustan Unilever, a business which accounts for about 5% to 6% of the Group turnover. Important but not the only business we have.

Now, local, low cost competitors have actually been winning share in this market at our expense and others. And recently, more internationally branded players have rediscovered the opportunities for growth in India. We''ve had years of very, very strong growth in that organization, but it is also fair to say that last year''s results were disappointing to us as that growth had come to a halt.

Now, in India, like other places, we are 100% determined to stay competitive. I actually was there four weeks ago, once more going through our plans with our whole organization. We''ve strengthened innovation, we''ve strengthened our support and obviously we''ve strengthened the right status in the pyramids that we have, as the tea example, for example shows and not surprisingly, growth is returning.

We''ve stabilized our volumes in laundry powders. We''re investing in superior products in a number of other categories, such as Vaseline for Men. We''ve launched Cif, Domestos and then the tea thing that I talked about.

We''ve also relaunched our entire portfolio in skin cleansing with, again, bringing attention back to the local jewels. And we''re seeing that business responding positively as well.

And then, finally, I''m pleased to say, an important category is hair. And there we are growing again market share versus an international competitor. I recognize that there is much more to do in India, and certainly it keeps us a little bit humble. And we know that success doesn''t come lightly, but we are confident that we''re doing the right thing there to bring this business back on track and the Indian organization should be complimented about that.

In the meantime, I continue to be encouraged by our performance in all of these fast-growing, competitive D&E markets. Just to grow at these rates requires an awful lot more volume that has to be put through our system and somehow our organization is able to do that, and increasingly at a faster speed.

The third thing I want to briefly touch upon is related to a little bit of a longer-term thing that we keep working on, and that''s our culture and performance. It''s easy to get short-term results I believe, but what we really are after is to have a long-term, steady and good performance for this company.

So there are a few quarters that we''re pleased about, but it really has to come down at the end to sustainable growth. We see the organization continuing to strengthen.

Our strong cash conversion cycle, our tremendous discipline around our savings programs, the accelerated pace of innovation we talked about, are all examples of our organization getting faster and more agile. Jean-Marc himself is a great addition to the team, and I certainly also look forward to welcoming Mike Polk as the President of the Categories who replaces Vindi.

As you know, Vindi is retiring at the end of May. And let me use this opportunity to say that I believe that Mike has very big shoes to fill. Vindi has obviously been instrumental in driving this acceleration that we''re now talking about in stimulating this innovation program, making it bigger, better, and rolling it out faster across the world. He will leave a lasting legacy in this company and obviously we will benefit from that for many years to come. Fortunately, we''ll be able to keep him as a very good friend but we will miss him obviously as a colleague in the company.

I also welcome the UEx, Dave Lewis and Keith Weed, both of them are actually Unilever veterans, in experience if not in age. And they have, each of them, their own powerful track records.

Now, let me just give you some facts and figures about the strengthening of the organization we''ve done. If you just take the top 100 people, the senior people that lead this company, it is true that about 60 of them are in new positions over the last 12 to 15 months. 20 of those have been promoted from within and four outsiders have been brought in.

And I specifically mention that to you as an indication of the outstanding bench strength that we have in the company. And there is no doubt to me that the changes we are making will help us to continue to accelerate our journey towards implementing our strategy.

At the same time, we''re also stepping up the training and leadership development programs. Increasingly, senior management is being benchmarked against the best-in-class and in-depth personal development plans are being created which allow the company and the individual to succeed.

We see our progress again increasingly being recognized also by the outside. In many, many places we are becoming again the employer of choice for many of the highly qualified people out there.

Our new compensation system that we will be putting in front of the AGM in May, is also designed to further sharpen this performance culture. There are a number of elements that will be covered there. The simpler, more stretching targets aligned to the company strategy.

More differentiation in our compensation based on individual performance. More weight to the long-term performance and more skin in the game for each of us and all of us. And, finally, a higher potential reward for outstanding performance. I am convinced that these changes will boost the overall performance of the company and we''re starting to see that coming through.

Now, the final point I want to end with is just a few words on the outlook. You might hear increasingly bullish noises from economic commentators about the green shoots, as they call it.

In the U.K., I deliberately used the word green sprouts from the beginning because I''m personally not convinced they are shoots. We''re starting in many cases with companies that have a tremendous low base a year ago, so easy to show some improvement. And there certainly is some inventory replenishment that is starting to take place, showing, again, a partial lift in the numbers. But we continue to believe that the recovery will be long and drawn out and we plan our business accordingly.

Just a recent event this week again in Europe point out the extreme volatility that we''re living in and the level of ambiguity that we''re dealing with. We actually see the wealth increasingly diverging in two different worlds, not surprising to many of you in the developed markets, there is a tremendous amount of deleveraging that needs to go on.

The impact of these huge fiscal deficits, not only here in the U.K. where we are currently, but in many other places, the effects on public spending, the increase in taxes, the continuously stubborn, high, and in many places increasing unemployment and low consumer confidence will have, will have a prolonged effect on the growth or lack of growth, dare I say, in the markets that we compete in.

Now, in D&E, we see a more robust growth but it again is at lower level than we''ve seen prior to 2007, with a risk of overheating in some of these markets actually by China and India. For that reason, let me be again once more very clear and consistent. We do not -- we do not expect the environment to get better and we do expect competition to get tougher.

As Jean-Marc has said the tailwind from commodity costs will turn into a headwind and we will see an increasingly tough comparator as the year progresses. So please once more don''t run ahead of yourselves. Our guidance is clear. We will continue to focus on profitable volume growth -- profitable volume growth, whilst delivering steady and sustainable year-on-year improvements in operating margin as well as strong cash flow.

With that ladies and gentlemen, we''ll certainly look forward now to taking your questions. Thanks for your attention.

Question-and-Answer Session

Warren Ackerman – Evolution Securities

Morning Paul, morning Jean-Marc, it''s Warren Ackerman here at Evolution.

Paul Polman

Hey Warren.

Jean-Marc Huet

Morning.

Warren Ackerman – Evolution Securities

Two questions. First one I''m just wondering whether you could drill down a bit more into Western Europe, obviously a pretty good quarter in terms of volume and margin. But what are you pleased about in Western Europe? What still needs to be done? And then the second one is really on the market share performance of the business in aggregate. I think in the Q4 stage, you said that two-thirds of the business was growing market share up from one-third at the beginning of the year. I''m just wondering where we are overall, and whether you could maybe dig down into some of the categories where you''ve taken or lost market share. Thank you.

Paul Polman

Thanks Warren. The first thing is just let''s start with Western Europe. I think we are overall pleased with the results. As you see here it''s quality growth and it''s done at the same time as we improved the bottom line. And I think that''s important to point out as we have mentioned obviously before but you are seeing increasing proof points from that.
Europe in all fairness will continue to be an overall tough market.

We are certainly growing share in Europe. This is the seventh consecutive period actually that we are growing overall share in this market. But the market is low in growth. We will -- we don''t expect really this market to show significant growth rates above the 1% more or less that we are seeing right now.

Not surprisingly the progress that we are seeing in Europe is really driven by the stepped up innovations again. In fact, dare I say that our European region was probably the lowest region in innovation. And that was a self-fulfilling prophesy, as we were running this region with different objectives than we do now. We have taken the attitude, as I''ve mentioned before, that we roll out the same innovations that we have globally also in Europe.

You see the Signal Anti-age, we are actually growing share in oral care. You see our ice cream with Magnum Gold, we are actually growing share in ice cream. In our Deo business, we have brought out the natural minerals very fast across Europe. We are growing share in deos. So increasingly we see that, as I mentioned cheek in tongue before, Europeans are human beings as well, that if we launch the right innovations across Europe we get results.

We are also a little bit more daring in launching new products in markets which we haven''t done for a long time. In fact we had more of a strategy of retracting than launching. And we have again launched household cleaner products in Italy. We''ve actually launched Lipton Tea in the U.K. recently and now in Spain. So the list goes on. So frankly Doug Bailey and his team are getting robust growth across categories.

The category that continues to be difficult in Europe is obviously SCC or Spreads, heavily correlated with butter and the butter prices. And we are growing share in that category, but I have to say the overall volumes are not moving at the speed that I would like. And then the market of Savory we have a very good pipeline of initiatives there again with the two-in-one product, which is doing extremely well, with our proprietary Knorr Stock Pot product, which is doing extremely well. But those are markets that are very, very competitive.

In terms of -- so I think I have included the market share in that comment as well. If you look on a global market share level Warren, we have about that same ratio of two-thirds building share versus what I mentioned before, one-third at the beginning of the year. There are some cells, as we call them that are obviously stubborn that take a little bit more time.

But I think that consistency is coming through now across most categories. There are one or two categories I don''t really want to go into right now where I''d like to do better, as I said Savory and SCC. They are actually growing share, but we''d like to grow a little bit faster there as well, that would be helpful. But broadly I see the improvements across all categories.

Warren Ackerman – Evolution Securities

I just wondered Jean-Marc, Jean-Marc why is the restructuring spend going to be higher than the 50 or 100 bps or beyond the top end of that range? Are there any specific projects that we should know about?

Jean-Marc Huet

Well let me just take a step back. If you look in 2009 we brought forward restructuring. It was the right thing to do. And we are very much going to be doing that this year as well. And so again our restructuring was 120 basis points in the first quarter, markedly down from where we were last year. And we had given guidance of 50 to 100 and quite frankly towards the higher end of that range towards 100 basis points. And so we''ll be in a level similar to Q1. And where we see opportunities we will advance the restructuring to make that we can reinvest in the business.

Warren Ackerman – Evolution Securities

And what do you think the Sara Lee will be on top of that? Is that another sort of 10, 20 bps?

Paul Polman

Well we are assessing that. That might be the range, but we have to wait first till we get approval in the third quarter before we can do that Warren. But let me -- obviously we can not talk all the restructuring programs before we announce them and deal with them. You understand the sensitivity of that. But we increasingly see the benefits of the discipline that we are driving into the system. And as we do that we also discover other opportunities, and that''s obviously where we go after.

One of the projects that I can mention is we are just rolling out the Unilever Enterprise Services in a bigger scale under the leadership of Pascal Visee, which really groups all of our bundles of services and moves that forward across the organization. We also have announced the regional supply chain company Cordillera for Latin America, which basically then structures the company into three regional supply structures.

So those are major projects to make the company more efficient. And we are actually expecting more efficiencies out of that. But it also is a slightly acceleration in savings. Just to put it in perspective by the way, if you have 10 basis points more on the restructuring, it''s 40 million euros on a company of 40 billion euros. So I don''t think we should spend too much more time on that.

Warren Ackerman – Evolution Securities

That''s helpful. Thank you.

Paul Polman

Yes. Thanks Warren.

Operator

Our next question then comes from Sara Welford from Citi. Please go ahead.

Sara Welford – Citigroup

Hi. I have two questions. First of all in terms of pricing you''ve talked about how you think that it''s going to be towards the end of the year when you''ll see pricing turn more positive. Can you just talk a little bit more about how you see that change coming about, and what has changed your mind?

And secondly, in term of rolling out brands to new markets, how long do you think -- how much longer do you think you have of this? Is it something that is going to last through to the end of the year and perhaps into next year as well? How much scope do you see there?

Paul Polman

Yes. Let me just briefly address those. On the pricing, let me be clear again the good news is that pricing in the quarter is flat. We have not seen any price movement downwards or upwards. Now, I would have liked to have seen a little bit more upwards if I have to be honest, but we have not seen any movement. In fact, in some categories we are moving up and some categories we are slightly down.

The main driver for why we don''t have any price movement in the category is really the increased competitive activity which is at extremely high levels. And as I mentioned before some people have a loose translation of innovation and we have to be very clear that we keep our brands competitive. Where we do that we actually see acceleration in our growth and the numbers would support that.

We do expect that as we lap the price adjustments we''ve made in 2009 that progressively over the next quarters we will see an improvement in the price components. And we very much believe that. And some of that we have actually seen coming through already in the quarter. So it''s only that positiveness as we lap last year''s price adjustments will occur at the latter half of the year, and that is really what we are flagging you.

The question on pricing is the same thing. I think the main pricing activity we see in these newly discovered countries by some like Indonesia, like Turkey, like China, to some extent like India, and we have to keep our brands competitive.

And it''s mainly in the laundry, household cleaning area, some of that in hair care. And I was very interested in some of our competitor''s comments, and I think some of the others have commented as well to see the same price activities in laundry in the U.S. or Eastern Europe or in Germany, markets that we don''t participate. But I think some of our other competitors have referred to significant pricing activity as well by one of the key competitors in the market and there we need to stay competitive.

I personally think that that increased promotional intensity that comes with that will be at the levels that we see now, and slowly improve. It will take a little bit of time to get out of that again. And obviously we will be looking at ourselves at driving our business by the innovations that we talked about.

How long can we go on with these new brand introductions and innovation? Actually quite a long time. We are becoming better in driving our innovations across multiple markets. It''s now quite normal that we talk about 30, 40, 50 markets of expanding these new innovations. But we also discover the tremendous strength of our portfolio both in the emerging markets and the developed markets, and the tremendous arsenal of good brands that we have that we can launch.

We don''t have -- we have Lipton probably only in about half of the world, so there is a tremendous opportunity to launch a brand like Lipton. Magnum ice cream is not even in the U.S. yet. So there is a tremendous opportunity to expand still our portfolio in many other parts of the world. And that is true for our hair care brands, our Ponds brand, our face brand which is doing extremely well and gaining share in places like the Middle East or China against our main competitors.

We have only -- we only have that brand from, if I may make a guess, in about 35 countries of the 140 countries that we operate in. So we have a -- certainly enough juice in the system to keep expanding our portfolio.

Sara Welford – Citigroup

Okay. Thank you.

Paul Polman

Yes. Thank you.

Operator

Okay. Thank you. Our next question comes from Celine Pannuti from J.P. Morgan who rejoined.

Celine Pannuti – J.P. Morgan

Yes. Thank you very much. I hope -- I''m not going to repeat some other question, but on -- continue on the pricing point. You mentioned in the conference call that there was activity in Asia. Well we know much about the Indian issue. But you also mentioned Brazil I think and Western Europe. Could you give a bit more flesh on exactly categories or what is going on there?

And my second question will be in terms of market share. I understand that you are gaining share in two-thirds of your business. Could you try to give us some indication on how your market share overall is tracking versus the market in order to understand what is the good performance versus what is the easy comp and replenishment issue that you mentioned in your comments?

Paul Polman

Yes, that''s a very important question. If you look at the pricing activity I think it is more intense in these emerging markets where new competitors are entering often with low price products that they will report as volume growth, but obviously we have to respond to by keeping our prices competitive.

So that is actually the activity going on in India, or the activity that we talk about in Turkey or Indonesia. To some extent we''ve seen price adjustments in China. And the same happens actually in Europe, in categories like laundry and dish we have seen the promotional and pricing intensity increase over the last six months. It''s not really a three month phenomena, it''s the last six month phenomena.

The good thing is that about -- just take Europe itself, 60% of our top 30 sales are actually gaining volume, overall Europe seventh consecutive quarter of volume growth. So I think we know how to deal with that and at the end of the day the long-term battles I think will be won with discipline and execution and strength of our innovations.

So we will go through this. And where we have it we actually deal with this pretty well to be honest. If you look at the market shares, our overall market it''s probably better to express it that way, we look at Europe at best a 1% growth more or less, slightly different stories between food and HPC, but it''s maximum 1% growth, and the same in the U.S.

These are really sluggish markets at least for the categories where we are in. And then the emerging markets or the developing markets have a growth rate around the 3%. So if you average that out we see the global picture at about a 2% growth rate.

Celine Pannuti – J.P. Morgan

That''s volume?

Paul Polman

Yes, that''s volume growth rate. And value actually in some of these markets might be more or less the same to be honest. There''s not much difference plus or minus 1 percentage point. So against that you need to calibrate our results of 4.1%, and you can do it by region. So we broadly believe -- we broadly believe that we grow share across the regions on our core categories.

There are some categories we don''t grow share in yet, that the shares are stable. Oral Care we grow with the category but we are not growing share, but the category is growing nicely. We are only growing in Europe, so that would be one category. Dressings would be a category that we could do better. But they increasingly become smaller categories. We are growing share in tea. We are growing share in ice cream if you look at the food side. And then if you -- savory we are more or less flat I have to say.

And then in the HPC side, we are growing share in the whole skin area on a global basis. We are growing share in deo consistently. We are growing share in our household cleaners and laundry. And we are more or less stable in hair coming from a decline of many years, behind a strong pace of initiatives now across our total hair portfolio. So that''s more or less the picture that we are dealing with.

Celine Pannuti – J.P. Morgan

Just to go back on the pricing question, do you think that if input costs are rising that would somehow dissuade some of your competitors to play with pricing further?

Paul Polman

I think it will because we have seen some of these launches in some of these countries that have frankly limited success based on that basis alone. And these things average themselves out. I''ve been 30 years in this industry. So at the end of the day the models that we compete with, with our competitors are models that have to pay out for R&D and for our organizational structures. And these battles over time are won by branding and innovation. So I think we will -- and we see that in some markets already. We will get to those situations again I''ve no doubts about that.

Celine Pannuti – J.P. Morgan

Thank you.

Paul Polman

We know how to deal with it.

Operator

Okay. Thank you. And our next question comes from Martin Deboo of Investec. Please go ahead.

Martin Deboo – Investec Securities

Good morning, gentlemen. It''s a question on restructuring. I am less interested in specific guidance or specific projects, but I''m interested in the sort of strategic dimension of this. I would imagine from what you''re saying that you are seeing increased opportunities to find either cost savings or effectiveness benefits from restructuring.

And I''m interested in a general perspective on where you''re seeing that and where you think this is going? Is this mainly supply chain or is it sort of white collar overhead? Or where are you seeing the opportunities and what''s that telling you about your ability to improve the performance?

Jean-Marc Huet

Well let me just start by taking that question. I think that again one of the things that impresses me with Unilever only having been here for two to three months is this whole theme of continuous improvement. So if you look at the type of savings that we''ve achieved wherever we are we will not stop and we will continue.

So if I look at Pierre Luigi''s organization in supply chain where we are reorganizing ourselves on a regional basis, and really trying to drive supply chain savings, they will be at around 1 billion euro plus for this year. And so this is something that will continue, and if you have the mind set of continuous improvement we will continue to improve year-upon-year. I think the same thing goes from -- with respect to overheads. I''ll just go back to the virtuous circle of growth. You see that if you get the volume growth you will get the leverage from overheads as long as we keep our overheads in line.

Now, you will know that we made a lot of improvement last year in terms of our overheads. As volume growth goes through we will get leverage from overheads. It''s going to be an area of continued focus. And so again if you go through all the different aspects of our P&L we will continuously improve those line items.

Paul Polman

Yes.

Martin Deboo – Investec Securities

A quick follow up Jean-Marc. And in terms of regions do you see that mainly in Europe or in other regions as well?

Jean-Marc Huet

Well, I''m impressed by some of the activities that have taken place in Western Europe. And I go back just to the margin improvements that have taken place there. I think there''s scope for improvements actually throughout the three regions. Obviously, each and every region has a different type of P&L, a different type of dynamic, but I think it''s across the board.

Paul Polman

See what you -- what Jean-Marc is referring to, now that we are increasingly stabilizing the One Unilever in terms of our organizational structure, and which also affects the way we operate, we also see increasingly more opportunities to leverage scale around this company.

Just to remind you this last year alone in white collar we actually went down by about 1,000 people. And one of the big opportunities we continue to have is to make this company more customer and consumer centric, and change the balance that between the number of people that are customer consumer faced versus support. That is the big bucket that we are looking at.

The Unilever Enterprise Services, which is a global project that we are rolling out is a big enabler of that. And then having Pierre Luigi at the Board level now, it''s for the first time really that we have a supply chain officer at the Board level. And that is unlocking more and more opportunities as we dive into that. So these will continue to be our two buckets. And then the efficiencies and disciplines of capturing our volume growth will add to that and that''s the juice really that we will be reinvesting in the business for continuous growth that drives this virtuous circle we talk about.

Martin Deboo – Investec Securities

Okay. Thank you.

Paul Polman

Yes. Thanks.

Operator

Okay. Thank you. So our next question comes from Jeff Stent from Exane. Please go ahead.

Jeffrey Stent – Exane BNP Paribas

Good morning. Just a brief question please.

Could you just talk me through Latin American detergents and what you are seeing there in terms of the competitive dynamic? Thanks.

Paul Polman

Yes. Latin America obviously we are very strong in the South Cone. Chile, Argentina, Brazil very strong shares, we''ve actually -- if you look at it on a 12 months basis we have grown the shares. But as some of the sell side analysts point out don''t only talk 12 months, if you look at a shorter period of time we still see over a 12-week basis our shares improve. There has been a pricing activity, unnecessary in my opinion, in Chile by one of our competitors but also there we have responded. The unfortunate earthquake there on the one hand has given some disruption in supply for all of us, but also has brought back some stability in the pricing situation as that happened.

But broadly in that region we are holding our share I would say in laundry and also at very high levels. Our growth in that region continues to be double digit on that category by the way, which I also think again points out that the main opportunity that we see in future growth is market development and -- which is very much the case in that part of the world as well. And that will continue to be our main driver of growth as we move forward.

Jeffrey Stent – Exane BNP Paribas

Okay. Thank you.

Paul Polman

Yeah. Thank you.

Operator

Okay. Thank you. And our next question comes from Jeremy Fialko, Redburn Partners.

Jeremy Fialko – Redburn Partners

Good morning. It''s Jeremy Fialko at Redburn here. A couple of questions. First of all I just wanted you to clarify whether there has been any dichotomy between your volume and your value market shares or are they both growing at a similar rate? And then secondly one area that got virtually no mention in the press release at all was Africa. Can you just briefly run through that business and how that did in the quarter? Thank you.

Paul Polman

Yes. Well, the first one is our delta between our volume and value share is more or less the same. So if we look at that, we don''t see significant differences. Obviously, that is a mix by country and category but broadly -- broadly that is the same. We have both of those in positive territory and obviously like to keep it that way. The Africa situation is obviously a broad question because there are many parts of Africa.

South Africa is an economy that''s actually being hit more than other places. We have softness in the Greeces or the Spains or the Portugals or Irelands of this world in Europe. We have softness in the Japans of this world, in Russia and then the other country I would single out is South Africa. We are growing share overall, but volumes in that part of the world are soft.

In Central Africa, we are doing very well. We have a very aggressive program of new brand introductions and innovations without going into that in details but we just launched another laundry brand in Nigeria and actually are rapidly gaining market share. We''ve stepped up our activities in other parts of that region, which frankly had been a forgotten region by many and we cannot have these people pay the price for that. So I think we have a responsibility there and we are able increasingly to fulfill that responsibility to improve their lives whilst also building shareholder value for our company. And we are focused on that.

And then the North of Africa, obviously the Maghreb region and the Mashreq region, our business is in line with the total company. I''m just looking at it as I talk to you, so the Moroccos, the Tunisias, the Libyas, the Egypts, et cetera. So that''s basically the story of Africa. I do believe that there is potential on the African Continent that we need to continue to focus on and go after like we do in other parts of the world in line with our strategy of growing everywhere. We are not here for specific consumers. We are here to improve the lives of all consumers. And I think more than ever it should include the people in Africa as well.

Jeffrey Stent – Exane BNP Paribas

Okay. Thanks a lot.

Paul Polman

Yeah. Thank you. We''ll take one more question, if that is okay.

Operator

That''s fine. And our next question comes from Harold Thompson from Deutsche Bank.

Harold Thompson – Deutsche Bank

Yes, good morning gentlemen. Just two follow up questions, one on raw materials and the additional cost savings you are generating. You mentioned raw materials would clearly rise by the time we reach H2 and we are going to annualize on higher gross margins. Should we still expect though you to make gross margin progress through the second half as these raw materials rise? And the second one is on A&P really crucial for the long-term investments. You''re up 220 basis points. How much is more into the A side rather than just in the P? Thank you.

Jean-Marc Huet

So let me just take gross margins. As you will have noted in my speech, we will have more difficult comparators as we get into the second half of the year, given just the uplift in gross margins in the second half of last year. Secondly, you also get the rising commodity costs in the second half. So again if you are comparing with last year our gross margins will be adversely impacted by those two points.

I think just overall gross margins will improve for the overall year, and that''s an important point. In addition to that we are focused on cost savings which will also have a positive impact as we go through the year. In terms of A&P, I think that if you look at our spend the increase of 220 basis points, around 60% or so is actually through the increase of A versus P.

Harold Thompson – Deutsche Bank

Thank you very much.

Paul Polman

Okay. Thank you all. First of all, thank you for your support and thank you for the continued interest obviously in our company and the results. And for some of you thank you for getting up very early to be part of this conference call. Your support and friendship above all is always highly appreciated. You will have an opportunity to go into a little bit more detail with James and Jean-Marc in the upcoming road show that the two of them will actively participate in. And I certainly look forward to meeting you throughout the year at other occasions.

We are pleased with these results and we should be, the environment is pretty tough. But at the same time I again want to once more stress that we shouldn''t run ahead of ourselves. Straight line projections don''t make any sense here. We are running against tougher comparators. We are running against an economy that is certainly not out of the doldrums and we are seeing a competitive situation, which frankly I like because it makes us better, but at the end of the day it''s a competitive situation that we have to deal with. If these markets don''t grow there is increased tension in the system.

All of that we were able to handle very well. You see that in these results. We will continue to focus on our strategy and making that come alive. But don''t -- as they say in Dutch don''t smoke too much pot, stay realistic. Look at these numbers and look at our guidance that we give you and we stick to that guidance and we will deliver on that guidance. I thank you for -- once more for your attention. And I look forward to seeing you soon, thanks.