Unilever FY 1Q16 Earnings Call Notes

Graeme Pitkethly

Business environment has proven to become more challenging

“In January, we said that we were prepared for the business environment to become even more challenging and that has proved to be the case. In Europe, markets continue to decline with stable volumes but falling prices; while in North America growth in our categories has eased back to only around 1%. In Brazil and Argentina, market volumes are contracting as consumers struggle with rising unemployment and the high local inflation brought on by currency adjustment.”

Prices and volumes across categories are flat but trading up and trading down beneath surface

” Looking on aggregate and taking a broad global average, market volumes in our categories are flat and pricing is around historic norms. But within these aggregates we continue to see some strongly diverging trends. Many consumers are up-trading to higher value items for at least part of the daily or weekly shop. Well at the same time those consumers are looking to economies by down-trading for other purchases.”

Comps do get tougher in the second half of the year

“The Group comparators do get tougher in the second half of the year, but we remain confident of delivering against our objectives, which remain unchanged.”

The UK has been a particularly competitive environment

“in the UK, the market was particularly tough as an environment, but in Q1 we did see good volume growth and some value share gains, but that was all offset by price deflation. I don’t want to go specifically based on one quarter into details of the UK’s performance, but it’s a continuation of a very, very competitive marketplace across all categories. You’re aware of the consumer changes in the UK, very value conscious, continued growth of discounters, but above all very competitive on a high level of the promotional intensity, which was particularly sharp in the first quarter.”

North America continues to see a bit of trade destocking

“Obviously North America, and I will let Andrew have a bit of a think about the sequencing of cost versus benefits for the programs, if I may. First of all, your question about sellout, we do continue to see a little bit of trade destocking in North America. Sellout continues about 2%. Our selling is about flat, so that’s our main litmus test of the impact that exists there. To get into the balance between what’s winning and what isn’t so much rather than HPC in foods and personal care, we are seeing pretty – we are continuing to see share gain driven by deos and hair, but we are down in skin and oral. And overall share gain in North America has been driven by refreshments and PC. Foods is declining a little bit as you said driven by spreads. I don’t want to get into the detail on a quarterly update of really with spreads by geography.”

Consumers have been trading up in India

“The consumers are trading up and down. The example, if I go across categories perhaps where we see that more strongly could be in personal care and home care. They’ve all been expensive category, home care in particular and just wanted to share the example of laundry in India where I was a couple of weeks ago and the more fundamental, because I mean India has been less impacted, stronger economy, currency less impacted and therefore the deflation that we’ve seen in a couple of categories in India is much more function of the commodity cycle, but more fundamentally in the laundry business in India, a brand like Surf Excel, a little bit above we are continuing to see consumers trade up from the bottom brand of [indiscernible] into a position like Surf Excel and that thinking more longer term is exactly the sort of thing we expect to see and continue in very much what our strategy is focused on.”

Andrew Stephen