聯合利華 (UL) 2005 Q4 法說會逐字稿

Welcome to Unilever's 2005 fourth quarter and full year results conference call. This conference will begin by an introduction by Mr. Patrick Cescau, CEO of Unilever, followed by a presentation by Mr. Rudy Markham, CFO of Unilever, concluding with a question and answer session. [OPERATOR INSTRUCTIONS]. This conference is being recorded and will be available for a period of two weeks. Details of the replay numbers and access codes can be found on Unilever's website. An audio webcast of the teleconference will also be available on Unilever's website, www.unilever.com. We will now hand you over to Mr. Cescau.

Okay. Good morning to everyone here and good morning to everyone listening in. First, let me introduce my colleague, Rudy Markham, our CFO, and John Rothenberg, Head of Investor Relations, Charles Nichols, also from Investor Relations. Today our intention is to present for some 30 minutes and then take your questions.

So of course turning to slide two, the Safe Harbor Statement. As usual I'd like to point out that this discussion is subject to the usual disclaimer relating to forward-looking statements and non-GAAP measures. This disclaimer is included here and will be posted with the text of this presentation on Unilever's website.

And so on to 2005 on slide three. At the start of 2005 we were clear what we had to do. We had to restore our competitiveness in the market and get this business growing again. We had to do this in a way that we can sustain for the long term, creating value and unlocking Unilever's true potential.

On the next chart you see how we set about it. The strategy was simple, to focus on the three things that matter. One, making our portfolio work harder for us, with sharper priorities and resource allocation. Two, strengthening our execution capabilities, especially in marketing and customer management. And three, creating a simpler, more agile 'One Unilever' organization, aligned behind a single strategy, with the right people in the right jobs delivering better quality and speed of execution.

Our first priority was to get back in the race. We had to make clear choices about where we could win in 2005 and invest at competitive levels to stabilize our market share and restore growth.

We did this and got the result we were aiming for. But we also knew that to sustain this turnaround, to make it stick, we had to make fundamental changes to the way Unilever works.

Later in the presentation I will explain the changes we have made and why I believe we will win in 2006 and beyond.

But first let me start by explaining what we did in 2005 to restore our competitiveness and get Unilever growing again.

As you have seen in our announcement we delivered underlying sales growth for the year of 3.1% with growth momentum building through the year and we stabilized our market share.

Turning to slide five. How we did it. Well, we put more firepower behind fewer priorities. And in particular to exploit our strengths in Personal Care, Developing and Emerging Markets, and Vitality, and to regain momentum in Europe.

We targeted for growth the market positions, innovations and brands with the best potential reward. We invested strongly behind them and accelerated our programs to generate savings to help fund growth.

Investing in our strengths delivered the results we were aiming for and showed what we can achieve when we prioritize tightly and execute with discipline.

For example on slide six. Personal Care. We got Personal Care back to growth and to levels that are up with the best at over 6%. We delivered broad-based share gain across most of our biggest markets and strong profitability. Our big global brands are performing - Dove, Sunsilk, Lux, Axe and Rexona all grew strongly. Smaller more local brands also pulled their weight, for example, Lifebuoy and Clear.

Now let's turn to Developing and Emerging Markets on the next slide. In D&E we delivered a strong performance across the year in all major markets and across Foods, Home Care and Personal Care. And for the first time Unilever's sales in D&E markets at 38% exceeded our sales in Western Europe.

Turning to Vitality on slide eight. Across our entire portfolio, Vitality is the inspiration for innovations that are driving our growth. As you can see from the examples, Lipton and AdeS both healthy refreshing beverages. Dove campaign for Real Beauty and also healthier options in Ice Cream. Just a few examples of many.

Personal Care, D&E, Vitality, in all three of these areas we've achieved what we set out to achieve. Good growth and strengthened market position.

WE also made progress in Europe in 2005. And turning to slide nine let's look at what we did. Personally say that a healthy European business matters to Unilever. It delivers a large proportion of our sales, 41% in 2005, and is an important source of profit.

Europe is also a key source of insight into new consumer trends, innovation and talent that can be leveraged around the world.

Looking at our performance, Central and Eastern Europe performed strongly in 2005, with Russia for example delivering around 20% growth. So our issue is Western Europe and the issue is growth, and not profitability.

Western Europe is a tough competitive environment for reasons you know well, and turning this business around is not just about making a few tweaks, we are making fundamental changes. For the consumer first we are delivering better value. We have addressed pricing in selected markets and categories such as frozen foods in the U.K. or home care in the Netherlands. We are increasing choices, extending our product portfolio to address lower price points such as value ranges in ice cream and moving also in a wider range of channels.

We are delivering more and better innovations. New heart health ranges, for example, and also in Personal Care, Sunsilk styling. And we are putting more marketing investment behind our innovations and other growth priorities.

And for our customers we are increasing the value that we can both gain by doing business together. We are implementing a customer development improvement program in selected markets, with outstanding results. We put this to work for example in the Netherlands in 2005 where it has delivered better customer programs, increased promotional efficiency, more strategic investment with key customers and one face to customer making us a €1b-plus business in the Netherlands.

The program, which by the way is also delivering strong results in the U.S., has been rolled out into France and Germany and will be extended further in Europe and in the world in 2006.

For our organization, we are increasing our speed and agility and driving a more competitive cost structured by simplifying our organization and the way we work. We have also made substantial changes to the leadership in Europe.

We have pushed forward with One Unilever implementation, leveraging our scale by combining all of our operations within several countries, for example Germany or the Netherlands.

We are in the progress of setting up a regional supply chain organization based in Switzerland. And we are outsourcing business support services.

So we have done a lot to address our issues in Europe and as a result we have delivered real improvement as you can see on slide 10.

We have reduced underlying sales decline in 2005 to less than 1% against 3% in 2004. In the fourth quarter we delivered positive like-for-like growth of around 2%. We stabilized market share in foods with an upward trend in recent months. HPC market shares however were down slightly in the year but stable in the second half.

So real improvement in what is a tough and highly competitive market. But the best of our competitors are growing. And faster than us. We won't be satisfied that the job is done until we are delivering a competitive, and by that I mean winning, performance.

Now turning to slide 11 I'd like to talk now about how we have invested behind and funded our growth priorities in 2005. Getting back Unilever to growth required a step up in investment behind our growth priorities. In 2005 we invested €1,000m more in advertising and promotion and than we did in 2004. And that is 110 basis points.

We also invested significantly to reduce price or offer better value in selected categories and markets to defend or build key competitive positions. In the face of the a significant headwind from higher commodity prices our savings programs were essential for funding this additional investment. We relentlessly pursued cost saving opportunities, delivering over €700m in 2005.

Turning to slide 12. As well as working on the priorities we just talked about we have also been taking decisive action on parts of our portfolio that no longer fit with our strategy. In the middle of 2005 we sold UCI for $800m and we are very pleased with the value we have gained. But we also completed a thorough strategic review of our European Frozen Foods business. And as we announced this morning we have decided to divest the majority of it.

We have made a considerable investment in European Frozen Foods over the past four years, restructuring it to deliver healthy profit levels. But we have not been able to grow the business and that is key to future value creation. To do that would require significant management and financial resources and we believe that we have better opportunities elsewhere. We have therefore decided to look for a new home for this great business.

We have decided to retain Frozen Foods in Italy simply because we believe we can generate more value by keeping it. It has strong market position, is strategically important as our biggest single business in Italy and is an important source of innovation and technology in frozen ready meals which we are rolling out successfully in the U.S.

Now let's turn to slide 13 and talk about what we have done on Unilever's change agenda in 2005. I think we have done a lot in a short time. I have already talked about winning in key markets, how we made our portfolio work harder for us in 2005, and the results this delivered. We were able to do this and go further in our plan for 2006 because of the change we made in our organization during the year. The work we did to build capabilities especially in customer management and marketing and the action we took to make our organization fit to compete.

Let's look at some of the changes we made on slide 14. We've explained before the shape of our new structure and you can see that we have moved quickly to put it in place. We have simplified at the top, making it more clear who is responsible for portfolio choices, allocating resources and driving execution.

We have moved from three executive groups - ExCO and the two divisions - to one. And we have reduced executive management numbers by one third in 2005.

We have also flattened the structure, taking out layers. Of our top 20 businesses, which represent around 80% of our turnover, almost half already directly report to Unilever Executive members.

We have made both more clear who is responsible for delivering the capabilities we need to win, building great brands and taking them to the market profitably. So that categories and regions have now distinct but complementary roles. One group focus on driving what needs to be done globally, brand strategy for example. And another group who specialize in what gets done locally, people who live and breathe customer management, for example.

These new roles and structures are all in place. All management appointments are made and change programs are ensuring that people understand their new roles and more importantly put them into practice. We have capability improvement programs up and running delivering business results as you saw in Europe with customer management.

We also made good progress with the implementation of One Unilever in 2005 and that's about simplifying our business and leveraging our scale more effectively. We've merged our operations in countries so that at the end of 2005 over 80% of our turnover is managed through One Unilever organization.

Our structure is cheaper, but a really big win for Unilever is that we now have an organization that is closer to consumers and customers, faster, more agile and more disciplined, in a word, fit to compete.

Now I'd like to hand over to Rudy to take you though Unilever's financial performance in 2005.

Good morning everyone. Turning to slide 15, 2005 growth. As Patrick said, the number one priority in 2005 was to restore competitiveness and get the business growing again.

Our turnover in 2005 grew by 2.3%, with a 1.3% favorable exchange rate impact more than offset by business disposals. Underlying sales growth in 2005 was 3.1%, significantly better than the flat sales we had delivered in 2004 and in line with the growth of our markets.

Just as important, growth momentum has improved steadily since Q3 2004, with like-for-like sales growth or around 5% in Q4, after allowing for the effect of calendar days. Growth in 2005 was entirely volume, although pricing turned positive in Q4 as increases taken to recover rising material costs started to come through.

Turning to slide 16. You will have already heard about our sales performance in Europe. Volumes grew slightly in 2005 but investment in pricing meant that underlying sales declined by nearly 1%.

In our bigger markets we saw strong growth. In Russia and Poland, a return to modest growth in the Netherlands and Spain, and a better performance in Germany, France, Italy and Belgium. Only the U.K. failed to show improvement. In the Americas we've seen a fairly consistent level of growth throughout the year. In the U.S. our sales grew by 3.2% accelerating throughout the year as we gained share in aggregate.

In contrast we had a strong first half in both Brazil and Mexico but slightly weaker consumer demand and some share lost to local competitors in foods led to a slower second half. In Asia and Africa we saw a strong bounce back from a weak 2004 performance. All our major D&E markets delivered strong growth. India recovered strongly. China grew by over 20%, Japan returned to growth in the year and Australia's performance improved in the second half.

An encouraging aspect of our improved growth in 2005 is that the improvement extends to most of our major markets and indeed most of our categories.

Now on to slide 17, 2005 operating margin. Full-year operating margin is 13.4%, up from 11% in 2004. Before the impact of restructuring, business disposals and impairments, operating margin would have been 0.8% lower than in 2004. The key reason was additional investment, some €500m in A&P versus 2004 and zero price growth as we reduced prices in key categories and markets.

At the same time we've absorbed significantly higher input costs of around €600m in the year. Our savings of over €700m were therefore critical.

Restructuring of 90 basis points was charged in the year. A net 50 basis points of business disposals and impairments was also charged including the Slim Fast impairment which we took in Q2 2004, 2005.

Now looking at Q4 on slide 18. Operating margin in Q4 is 10.8% compared with minus 3% in Q4 2004. Before the impact of restructuring business disposals and impairments, operating margin would have been 1.3% lower.

A&P was significantly up but only slightly above the average for the year of 12.6%. Savings, some modest price growth and the benefit of improved mix exceeded cost increases in the quarter.

Turning to slide 19. An 11% increase in year-on-year A&P spend represents a significant investment in competitiveness. How we have spent this money is as important as what we have spent. Around two thirds of the additional A&P investment was in advertising which is key to building long-term brand equity. The investment was not across the board but was carefully targeted behind our business priorities. For example, investment behind some of our personal care categories in key markets was up by as much as 30% or more.

We've improved the quality and efficiency of our speed. Globally-led innovation gives rise to globally inspired communication. Scripting and shooting one high quality advert for €1m compared with a dozen for €0.5m not only saves money but also leads to better results.

And our A&P spend has been more consistently weighted through the year. This does not mean that spend is even from quarter to quarter as innovation activities and indeed competitive activity are not smoothly spread. But it does mean that we are keeping our foot on the gas across the whole of the business cycle.

In 2005, this has lead to a heavier year-on-year increase in A&P in the second half of the year compared with the first.

Turning to other key financials on slide 20. Earnings per share on continuing operations were up 22%. This benefited from lower restructuring, business disposals and impairment charges totaling €0.6b in 2005 against €1.8b in 2004. Total earnings per share were up 37% in the year including the profit on the UCI disposal.

The tax rate of 26% was above the 22% in 2004 but below our previous long-term assumption of 30%.

Net cash flow from operating activities was €4.4b, some €1.2b lower than in 2004. As well as the increased A&P investment, we incurred higher cash costs for restructuring, pensions and tax in the year.

Working capital was again lower year on year. But not by as much as in 2004. This led to a €0.4b lower inflow from working capital reduction.

Turning to our longer term metrics. Our measure of ungeared free cash flow is designed to reflect the long-term cash generation of the business irrespective of financing decisions. We have remapped our definition onto IFRS measures including P&L charges for pensions, share options and tax.

On this basis our free cash flow for the year was €4b. Incidentally, under the old definitions it would have been €4.1b.

Our return on invested capital was 12.5% in 2005, compared with 10.7% in 2004 helped by lower restructuring and higher profits on business disposals. Our definition of ROIC retains all goodwill and intangibles in invested capital regardless of impairments.

Now on to slide 21. Our financial strategy is designed to ensure that we maintain a balance sheet structure that is competitive for our industry. This means a competitive cost of capital and the flexibility required to develop the business. This means for us a strong single A credit rating.

As shown by the €4b FCF generated in 2005, Unilever's cash generation is strong. Although some credit metrics are below those required for a strong single A rating, we expect them to improve in 2006.

In 2005 we spent €0.8b on replenishing ESOP hedges following their use for conversion of preference shares. We also completed share buybacks totaling €0.5b.

And we have announced today an increase in the 2005 dividend of 5% subject to shareholder approval. For 2006 we plan a further share buyback of around €500m.

During the course of the year we may review this position in light of possible tactical acquisitions, disposal proceeds, including Frozen Foods, and the development of our credit metrics. Overall we are pleased with the progress that we've made in 2005 which gives us a stronger position from which to move forward.

Now to Unilever's financial model on slide 22. As you know our over-riding goal is sustained value creation for our shareholders and we aim for top third TSR performance.

We aim to win market share overall. But growth is a means to an end and only one of our key value drivers. Our long-term targets to remind you are a free cash flow of between €25 and €30b during the period 2005 to 2010. And secondly an improved return on invested capital from a 2004 base of around 11%.

We plan to deliver this from a combination of top-line growth ahead of our market growth which we estimate will grow at between 2 and 4% per annum. Improved operating margin against the 2004 base allowing for a normal level of restructuring of 50 to 100 basis points per annum. An improved capital efficiency versus our 2004 base. And an improved tax efficiency which we now expect to lead to a sustainable tax rate of around 28%.

Patrick back to you.

Now turning to slide 23 for the next important step towards those goals at 2006. In 2005 our number one priority was restoring growth. In 2006 our priority is to sustain our growth momentum and improve our margins. We are under no illusions, we know that we must deliver both good growth and strong profitability to deliver Unilever's full potential value and this is what we are planning to do.

Turning to slide 24. Our strategy is to build the winning portfolio with more leadership positions in key markets and a more powerful presence in high growth spaces. Going into 2006 we have much greater clarity on what our priorities are, precisely which categories, segments and brands in which country will drive growth.

We have made sharper choices and set clearer objectives. And we are channeling funds and resources behind our best opportunities. We have the right structure to deliver and we have the discipline in place to make sure that we execute against our priorities.

Our people are clear what they need to do and what they will be recognized and rewarded for delivering. So let's take a look at these priorities, turning to slide 25.

Now of course I want to keep some surprises for our competitors but I will give you some insight into our priorities for the year. I've already talked about Europe. You also won't be surprised to hear that for example within the high growth space of D&Es, India, China and Russia are big features of our plans.

Or that Vitality is shaping our initiatives in heart health, savory and tea.

Or that in Personal Care we are building on our leading market positions in deodorant and personal wash.

We are also moving forward with our change agenda. Turning to slide 26, a key focus, as we have said, will be strengthening capabilities. We said earlier what we are doing to improve customer development. As we move forward we are also improving key aspects of our marketing capability. For example the way we craft and leverage our global brand mixes.

You have seen what we can do when we are at our best with brands such as Dove, Axe and Sunsilk. In 2006 we'll step up the pace on applying the same methods and standards across all of our brands.

We will also continue to improve our fitness to compete. Specifically we will complete One Unilever implementation and this means a single management team in all markets. Simplified, standardized business services up and running with a substantial proportion outsourced. The majority of our top 20 markets reporting directly to the Unilever Executive. And further reduction in management headcount.

One Unilever implementation will deliver €700m savings by the end of 2006 and €1b by the end of 2007.

Now to the outlook on slide 28. We continue with our recent practice of not giving special specific annual top or bottom line guidance. In 2006 we plan to sustain our growth momentum and improve margins. To drive growth we will invest competitively in A&P behind our priorities and with the focus on effectiveness. We will also anticipate benefiting from a progressively more favorable pricing and commodity cost environment and a continued flow of savings.

We plan restructuring to be around 100 basis points. We will confirm the impact of business disposals if and when they happen. Overall, we are expecting operating margin to increase in 2006 from the 13.4% in 2005 after allowing for the 100 basis points of planned restructuring. We expect the tax rate to be in line with our longer term guidance of around 28%.

Now turning to slide 29, I am proud of what we achieved in 2005 and the momentum we have created. And we enter 2006 in much better shape. We are confident, we know what we need to do to win and we have the clarity, commitment and courage to do it.

And I have every confidence that we will deliver what we have promised and take more important steps towards unlocking the unique potential of Unilever.

Thank you Mr. Cescau. We will now poll for questions from analysts. [OPERATOR INSTRUCTIONS].

Yes I've got two questions. Patrick, could you give us anymore qualitative guidance on the aim for your investments for 2006 versus 2005? And secondly in terms of your overall cost savings guidance clearly you've raised your guidance in terms of overall cost savings from the One Unilever program from €0.7b to €1b by 2008. One assumes that there will be some residual purchasing savings on top of that. Could you give us the savings, total cost savings each year for the next three years please?

Just let me repeat what we said. We said that by the end of 2007 our honing rate from the One Unilever program will be around €700m and we see opportunities to increase that to €1b in 2007. In 2005 we did around buying savings plus the contributions for One Unilever, about €700m and we expect to keep the momentum in 2006 with this overall program. And of course we will expect a higher level of saving in 2007. As to A&P, I think what I said is that we will invest competitively.

I hope that you will have heard from the comment that I made that we have become strongly more selective in the way we allocate resources across our portfolio and across our geography. We've clearly identified areas where we intend to build stronger leadership position in areas of higher growth and what you can expect is that we're going to invest more money behind this position to strengthen this leadership, or when we see an opportunity to create this strong leadership position.

Equally, there are going to be areas where we are going to in fact go for generating more value. We're making choices of portfolio. In total we expect to spend competitively and that may involve increasing the level of spending. The market will dictate, plus the strategy.

Martin?

Yes thanks. Martin Jones from Execution. You've given us some guidance that the actual restructuring margin should be up next year but can you give us some guidance on the pre-restructuring margins given the difference year-on-year?

You know we want to get off that before -- after that, so let me just try and see if they will ask that. The flow in the margin after everything is going to be 13.4%. It was the ambition to increase the margin and, I hope you will appreciate that in terms of transparency, we're going to make absolutely clear what the net impact -- as we did in the fourth quarter of impairment, restructuring, disposal, one-off planning specifically for them, as they occur so that you have a full understanding of the quality of the margin improvement. Beyond that, no guidance of pre- but [serve] a good serve after. And I hope you have appreciated that we're going one step towards meeting the requirements in full transparency, Martin. Yes?

Yes, that's fine. And just a quick follow-on. Can you give us some indication what the underlying growth in D&E markets for 2005 was?

9%. 9% and as I said it was very broad based.

Michael?

Yes good morning. Michael Steib from Morgan Stanley. My question is on pricing. Clearly you didn't take any pricing in 2005, do you see -- go for price increases in 2006 and if so in which regions and categories?

When you say we say didn't take pricing I think I accept that the mathematical view is exactly that one. The reality of it is that with a very simple pricing policy where we can recover price increases, either because we are the market or price leaders, or because we see that there is room for such an increase, we take a price increase and we took -- you wouldn't be surprised to see for example that we've increased prices mid-single-digit in laundry, in DNA or in [Cleaning DNA].

Equally in some categories where we saw a lot of competitive activity, a lot of competitive pressure, Haircare for example, or Europe as a region, we acted on pricing. So at the end the net looked like no pricing but they covered two different realities. What we said is that in the fourth quarter we've seen some pricing opportunity and there's a contribution to the margin in pricing that you saw. We also indicated that for next year we see further pricing opportunity together perhaps with less of a headwind in raw material costs.

Did you see generally easier in North America than in Europe, on average?

It was taken -- it all depends on the category. We've taken some price increase -- probably more price increases in the U.S. than we did in Europe again.

Much of the price adjustments that we've taken to make ourselves more competitive in the market places have taken place in Europe particularly. Julian?

Can I just reiterate, if you could the buttons then I can see the lights, great and also if you could name, name and institution.

It's Julian Hardwick from ABN Amro. Patrick, in the past you've highlighted the importance of improving your innovation hit rate both quantum and quality, could you put some metrics behind that in terms of what's happened in ‘05 to give us some sense of progress you’re making in that area?

I'm going to try to do that Julian, but we have to be clear that everyone has a different metric to measure innovation, and you know what ours is, it's the number of years and net of cannibalization, and all the rest of it. But within our metrics, we have in the past a range which was between 6 and 8%, I believe was the numbers, and for 2005 we are top end of this range. So without being able to compare what it says [simply] is within 2005 and some of you have picked that in some of your reports, we've seen an improvement in the quantum and quality of our innovation and that's a movement we intend to pursue in 2006.

Okay, we'll take the next one from the line and then I'll follow up on the red lights in here.

Our next question comes from John McMillin of Prudential.

Good morning Patrick, Rudy and John. It's early over here so I congratulate you on your top-line performance, particularly in the fourth quarter, but I'm just trying to understand what caused the tax rate Rudy, just -- did you do it conveniently to help you on the bottom line? I know it's early.

No, of course not John. You know that we calculate our tax rate going forward on our assumptions about the way profit will fall across the world. You also know that each year we have to take account of challenges, discussions with the tax authorities on particular items that we've taken, and in fact in 2005 we had a number of resolutions of previous year tax cases, tax discussions which led to a further reduction of the tax rate.

On top of that the measures that we are taking across the business of using the tax opportunities that are around the world and continue to be offered by many, many countries, to an optimum effect and that is what has led us to reduce the guidance that we've given for the longer term to the new rate of 28%.

Okay and Patrick, if I could just talk to you about the acquisitions. I think in your prepared remarks you talk about some potential for a targeted or smaller acquisition. Is that still your mindset? Obviously over here Pfizers are talking about a consumer products business, but is your mindset still to avoid big deals until you fully get your house in order and how long will that take?

Well first, what we have said and I'd like to repeat that, we have said that we don't need big acquisitions to deliver our strategic objective. That was the first one. The second point we have made, and I repeat it, is that first we need to get back credibility in order to convincingly go for the revenue synergy and all the rest of it in an acquisition and we don't need a disruption of a big acquisition at a time where we are renovating the business.

We've made good progress in 2005 and also as I indicated, with a very sharp view of growth priority and opportunity. And yes, we are certainly having to consider very selectively tactical acquisitions as a way to do two things. Strengthen our leadership position, fill the gaps that we have identified and all that behind our growth priorities. And this is a logic of the strategic choices that we are making. So we see that -- more active and better about the acquisition track, yes.

Thank you.

Thank you. We'll take one more from the line please.

Thank you. Our next question comes from Andrew Wood of Bernstein.

Yes, good morning, another person up early this morning. A broader question for you which is a question on sustainability, and that's because over the last couple of quarters I'm afraid I'm beginning to get a sense of deja vu here. We have big increases in A&P spend driving top-line momentum up to 5%, which is well ahead of the long term sustainable growth rate of Unilever, and we've been here before.

So what happens when A&P increases come back down to earth? Are we in for another boom / bust cycle that's going to end up disappointing investors as the top-line growth disappears in 2006? What's different this time around versus where we were two or three years ago?

Well Andrew, I'm not making a large noise about the quarter figure of 5.5%. Certainly it reflects the increased investment that we made during the year and the investments we made also in the quarter four, substantially above last year. What we have tried to do is assure you that we are trying to one, invest very wisely behind our priority. So it's not an increase across the board.

And second, the majority of the money is getting behind long-term advertising. It's not about buying the volume short term, it's investing in the long-term health of our brands.

The third point I would like to make is that we have moved towards a much more consistent weighting of advertising which is the natural enemy of boom and bust and this is explained why in the quarter three and quarter four, second part of the year, you have seen higher numbers in Unilever. And the point I would like to make is while we have substantially increased spending in the quarter four 2005, in fact we are only marginally above the average for the year.

So we're spending the money wisely, behind priorities, our market shares are good, we're investing in pricing. And I'm certainly pleased with the progress we've made, but I have also indicated there's some more work to do and if you read the statements we have made, we have said our number one objective is to sustain our growth performance.

I've not put a more ambitious target than that out there and this reflects my own confidence that we are in better shape. This reflects also my confidence that the number which is relevant for us this year is a full-year number not the quarter number. We continue to do more of what we have done. Now I hope and as I said in my speech, we do everything to deliver the promise that we are making.

Okay, thank you.

Just for clarity because there may have been a number used wrongly there. The growth in the fourth quarter as we have in our statement, on a like-for-like basis is 5%. David?

Yes, David Lang, Investec. Sunsilk was listed amongst your top performing brands this year, I was just wondering if you could tell us how the rollouts continued in Europe and why this gives you confidence that you can actually win the rough, tough North American market with Sunsilk next year, or this year?

Who's saying that?

Advertising agents are saying that you're going to [inaudible].

Right. Well, we have continued to see very good growth in Haircare and Sunsilk, including Europe, but it's not the place where I would like to point you to see how we measure with the best. I'd like to point you to places like Mexico where we entered the market a couple of years ago, in a market where there was very strong dominance of some competitors and we gained very good share in the past 2 to 3 years. We spent a certain amount of time with [inaudible] on monthly stickers to brand leadership.

We feel good about our strength. We feel good about our mix. It is a mix which is unique to Unilever and we are continuing to make progress and for the rest, whatever the advertising agencies are saying, we feel that we have the strength as and when we decide, to move against the best in whatever territory. So we feel good about it, just like in the summary.

And might I ask a supplementary, perhaps of Rudy? it looks to me as if the Johnson Diversity business has gone down the drain in ‘05. I was wondering what the story is there? There seems to be a bit of a negative number.

There's no talk of Johnson Diversity going down the drain, let me just put that completely right. Johnson Diversity as a company, you will have seen their statements, are in a different industry to our own. They have their cost pressures. They have their turnover opportunities and I'm not going to comment on their performance. They -- we still have as you know a small share in that company, but its impact on our results is not material.

What's the real impairment?

I said we think it's a small part of the value in our account.

Thanks very much.

Tim?

Thank you. If I can go back to a question on margins. If I add back the impairment charge on Slim Fast, the base is 14.3% Is that a fairer base going forward, that you would need to improve on?

Do you know that I constantly repeat what I said in the statement, we said 13.4%. We said 100 basis points from growth restructuring and that we will improve on the margin that we have in 2004 and I will not comment further, sorry to disappoint you on that Tim.

Okay. Could I ask a question about what impact the proposal for the business now put up for sale had on the business in 2005 and what were the figures associated with those assets being up for sale?

[inaudible] net performance, the performance was negative. 4.5% in Europe and that, if you calculate at probably an impact from 20 basis points on the whole of Unilever, a bit more in Europe.

And do you have any figures for the sales and profits of the business being put for sale?

I think we'll cross that bridge when we are there. We -- I can't speak really about the amount of money. We said the total business is €2b. As you know we're not selling part of it -- we're not selling the totality of it. We retain our Italian business, which is about 25% of the total, so that gives you the sales figures.

Just to add Patrick. At this stage Tim, the process is just starting and we of course have no desire to put anything in the market which might discourage people from offering the most attractive prices.

And one final if I may for Rudy on the cash costs of restructuring which feature in ‘05. If you could give us the scale of that and what it might be in ‘06?

Well, clearly over time the cash costs of restructuring reflects people costs. We've seen a significant chunk of that in 2005 as the One Unilever bites particularly in the simplification of the organization and the reduction in top structure and the structures below that, as Patrick has said. So the exact percentage I'll have to come back to you on but it's a significant chunk of the 90 basis points that we had announced. Heavily this year than in last.

Thank you.

Deborah, I think your lights been on.

Could I just --?

Say who you are please, sorry.

Could I just stick with categories? I'd like to understand more what's happening in Spreads and Cooking which is still down 3.4 year on year but it's also had [inaudible].

Spreads was up around 1% altogether in the year, so that [inaudible] get a number, which is not a stellar performance admittedly, but the markets, especially in Europe, were contracting. If you look at our share in that space, we hold our share quite clearly.

I think the other point I'd just add Patrick, in Spreads, that is one of the markets particularly in Europe where we made some adjustments to price. That clearly also affects the performance. And I think secondly our Spreads performance in the Americas was a little below our expectations for this year. I think that's been a bit of a drag. In Europe the things that have supported us are the success of the -- the continuing success of heart health products, particularly the extension into the shops for basal proactive, cholesterol lowering and heart health, blood pressure lowering ingredients. So these have all contributed to a good performance of our heart health brand.

Sorry, just on from there, do you give splits between Food, Household and Personal Care in terms of volume versus type? Do you have a split for areas [geographically]?

Household Care, I don't think we have given this -- the only numbers that we would be pleased to give to you is our Household Care business which has been [laggard] over the past couple of -- grew 4% in the year, not everywhere. But by and large quite a progress, and our Laundry business grew also. Total 4% in the year. So we had some good performance there and as I said for the Laundry a bit more pricing than Laundry and Household Care, a bit more pricing in it than other categories because of the mix of businesses. But I don't have the split in [the two].

Victoria, I think you're trying to get in. Say who you are please.

Yes, Victoria Buxton at Lehman Brothers. A couple of questions for Rudy I think. Firstly on operating cash flow, obviously €1.2b down year on year is a big number. There are obviously some one-offs there. Can you indicate however whether you think this also reflects an underlying slowdown in the cash generation of Unilever? That is, how much is one-off and how much is in your view ongoing?

And my second question, in fact two points of clarification. On page seven of your release there is a reference to earnings per share from continuing operations in 2005 of €3.39m, for the NV, that obviously is a materially different number from the reported number. Can you just explain what that number actually is? As just to clarify as well what was the restructuring charges in 2005 in basis points?

May I take the last one first? 90. The second is you comment on the operating cash flow, you're quite right and we flagged it I think in the announcement text, that operating cash flow reflected the much heavier spend on A&P that we've had last year. It also reflects a higher level of cash costs on restructuring. I commented earlier on that to Tim, and it reflects some higher cash tax charges. Beyond that I'm not going to speculate on the cash flow going forward other than to point you to our longer term measure of cash flow develop -- free cash flow and the target that we've set out for the period 2005 to 2010 and of course our free cash flow in 2005 on that basis was €4b.

And the other one I'll have to look up, which was the point about the OTPS. I have to look at that I'm afraid. I haven't got the data in front of me. I'll come back to you if I may.

Thank you.

We'll come back on that. Sandy?

Hi it's Sandy Soames from Cazenove. Could I just ask Rudy a couple of small points? The pension deficit Rudy, could you just quantify what it now is and whether the cash top-up on top of the service cost -- it will rise again and whether you'll continue with the same level of cash top-up?

And secondly, on your commentary on the single A credit rating, you said you were meeting some metrics but not others. I just wondered whether you could tell us which metrics you were not meeting? It feels to me as if your balance sheet is quite under-capitalized. Over-capitalized.

Right, thank you. Let me deal with the pension first and again just to explain under IFRS the pension numbers you have to look a little bit in the balance sheet to find them all. I apologize for that fact but that's the reality of the prescription. You'll find that we have a pension -- a surplus on a number of funds which stands of course in the assets. You'll also find that we have under the liabilities, we have a deficit on funded schemes as well. The two together show a small decline year on year so our deficit is lower. I think it's about €1.4b year on year from 2005 and that reflects a combination of the investment policy that we followed with the assets behind that fund, and we've had a good year in investments. So I'm pretty pleased with that. The remainder is the -- what we call the unfunded retirement benefits and those are costs that we deliberately keep on the balance sheet and that's fiscal reasons why we do that and that of course continues to grow in line with the liability and there's nothing that concerns us particularly about that.

In terms of cash payments, we made a cash payment on top of contributions both company and employee last year, I think of a total of about €500m. That is to do most particularly with the U.K. where we have agreed for a three-year period an increase in cash in the light of the deficit that we see currently in that fund, which is of course embraced within the principles of IFRS in the numbers that I've talked to you about.

For the longer term I'm not going to speculate on how pension deficits will unfold, it depends as you know as well as I on the assumptions you make about a variety of things. We have taken the latest longevity assumptions, people call them [longtality] but I prefer to think about longevity assumptions into our accounts and we'll see how that plays out as we go forward.

Ian?

Ian Kellett, Blue Oak Capital. Two points. First of all a point of clarification in case I misunderstood something. Your free cash flow target from €5 to €10b of €25 to €30b. I’m presuming that’s a six-year period, that is it's inclusive of both years. So the bottom end of that range, talking about €4.1 to €4.2b a year, so versus this year's ungeared free cash flow, basically no growth in free cash flow for the next six years is what you're projecting as a target for the Group at the minimum? Is that right? That's what I'm -- I'm just trying to [inaudible]

Well, that's not true. When we uttered the subject here, we said [inaudible] that the range €25 to €30b. Our ambition is to be towards the middle or top of the range, exactly what we said and you see that the first year was €4b. We're confident we're going to be within the range and that after consideration of the increased costs of pensions and all the rest of it. Clearly, I would be disappointed if we just reached the minimum because it probably would be very difficult to deliver top serve tier [inaudible] it would just be the minimum of this range and I think we said that in the last year, the comment was made in [last year as well].

Does that seem consistent to you with a top third tier as a target? You're kind of implying that it is. I wonder whether or not you're going to revise that target at some point?

We're not currently -- let's be clear. Currently we're not delivering a top serve tier [inaudible]. That's very clear. I think what we are saying we don't want to [depend] on this ambition and for that we need to improve our cash flow delivery and our results delivery, and growth is the key to that as we know.

Absolutely. Second question relates to the use of that cash flow and goes back to John McMillin's question really. Two years ago I think you were being fairly clear as a Group that in that planning period as you -- strategic planning period as you called it at the time, there were no large acquisitions planned and that therefore that free cash flow, subject to tactical acquisitions, was going to be returned to shareholders. And what we're seeing two years down the line is a commitment to €0.5b of share buyback which seems to me somewhat inconsistent with -- unless something's changed from two years ago, unless you're saying that actually maybe things have moved on a bit and we've dropped the conversation about no large acquisitions planned in the strategic planning group. I'm not hearing that anymore and I'm just wondering whether things have changed a bit?

We've not said that we're going after big acquisitions but we said sincerely the commitment we made for 2006 is €500m of share buyback and say we may review it in the light of a couple of things. Last year you know that we spent five plus the €800m for repositioning the ESOP share we'd use for the preference share. We've not closed the door, neither to an increase nor staying with the same number. We said we'll look at the best value creation opportunity that we have at the time and that may include an increase in tactical acquisitions. Absolutely. If you look at the debt position at the end of 2005 €10.5m, there's been no deterioration of our balance sheet and no fundamental change in underlying health. And we’re early in 2006, there are four or five years in 2006 with quite a generation of cash possible.

I need to make just one other addition to that, on top of course of the share buyback of €500m, we are also proposing to the shareholders a dividend of €2b, that is the impact of the dividend increase that I told. So in terms of returning money to the shareholders, that would be the figure that I think you need to keep in the back of your mind.

Yes. So just to be clear. Dropping the comment or not having reiterated it in the last say 15 months, that there are no major acquisitions planned in the strategic planning period, no large acquisitions. The fact that you haven't used that language over the last 15 months doesn't mean that you've changed your mind, it's just that you've not mentioned it, so you'd still basically stand by that, so that there are currently no large acquisitions planned within the strategic planning period? Is that currently your position?

Absolutely. We said also and you would expect me to say that we'll continue to watch industry developments. You can't say never. If situations change and it’s in the best interests to come back to shareholders. What we said, and I can repeat, we are not -- we don't need big acquisitions to deliver the strategy that we have articulated.

Arnaud?

Arnaud Langlois, JP Morgan. Two questions. First of all considering that your ice cream and Frozen Food businesses operate on a combined basis in a number of markets, is there any risk to the long-term structural profitability of your ice cream business in Europe by selling your Frozen Food business? That’s my first question.

My second question is related to pricing. You've mentioned that you've brought prices down in a number of markets, do you believe that prices especially in Europe, are where they should be or do you consider for the pricing action on the downside? Thank you.

First on the ice cream, yes they have separation costs. Yes there will be some restructuring costs as and when we separate but no we don't think that this will affect fundamentally the profitability of ice cream business. We have many examples in the world, let alone for example in the U.S., of standalone ice cream businesses, which are performing extremely well. So there will be some transition challenges, so we're going to address them and all that will be very clearly taken care of either in a restructuring or in the measures that we take to reduce the impact of the change. By the way in Italy the challenge will have been greater than anywhere else.

On your second question, we've made in 2005 the adjustment that we judged necessary in the current competitive situation. I can't exclude that we continue to make adjustments as and when the competitive situation demands it. We want to have -- and when I said about price I should correct myself -- it's about the value equation with the consumer. There are also areas where we intend, as we have started, to increase quality to be able to eventually get higher price from the property we're using. So market conditions will dictate. Yes?

James, and this will be -- there'll be time perhaps for one more but this will be the last otherwise. Just watching the clock.

James Edwardes-Jones from Execution. You stressed that your incremental marketing spend Patrick, was going to be focused, I think was the word. This time last year I think you acknowledged that you'd perhaps been over-focused on supporting a relatively small number of your higher profile brands. Can you reassure us that that mistake isn't being made again?

Well, I think we clearly indicated last year that we were absolutely right to have focused on the limited number of brands and grow those brands. And equally in the process, we've neglected a bit the category perspective, and what I'm saying is that we are looking at market positions which are a mix of brand and category.

We do not simply look back at a new version of [inaudible] and brands or whatever. We look at buildings, strong position, in geography and market and in category within that strong brand. We are not changing back to strategy which is simply our other brand. What I'm very clear though is that we are investing money selectively and differently behind our best growth opportunities and we -- there are areas, categories or regions, where I expect higher growth and other where I expect higher profitability, and that is the strategy for a balanced portfolio. There's nothing wrong with that. I would term that as a mistake but I would term that as a very clear strategy which identifies the priorities for growth. We are making choices.

Okay, we have just got time for one more. Charlie?

Yes, Charlie Mills, Credit Suisse. Your commentary on the U.S. referred to some one-off gains which you don't seem to be calling exceptional, sale of an office in the U.S., U.S. healthcare plans etc. Can you quantify those and confirm that they are not included in your exceptional commentary?

They are certainly not included in what -- we are not calling exceptional items, let's be very clear, bad stuff for want of a better word. Explicitly restructuring, disposals and impairments. That is the category of numbers that we've talked about and have quantified. The rest, all those numbers are included together with any other pluses and minuses in our results for the year.

Can you quantify these items?

No, we're not adding any further comment to the comment that we've got in the text. You will appreciate there are always pluses and minuses in our business, we've highlighted some pluses. They're not material to the overall judgment of the result.

Okay, well I just wanted to thank you for coming. I hope you found the presentation and the Q&A session useful and I am sure that I will be seeing many of you over the next few weeks, and in the meantime of course you will be able to draw on our Investor Relations resources to further the understanding of what we are doing and to bring clarity to the numbers. Thank you very much.

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