聯合利華 (UL) 2006 Q4 法說會逐字稿

Ladies and gentlemen, welcome to Unilever's Fourth Quarter and Full-Year Results 2006 conference call. This conference will begin with a presentation by Mr. Patrick Cescau, Chief Executive Officer, followed by Mr. Rudy Markham, Chief Financial Officer, concluding with a question and answer session hosted by Mr. John Rothenberg, Senior Vice President Investor Relations.

[OPERATOR INSTRUCTIONS]. This conference is being recorded and will be available for a period of two weeks. Details of the replay numbers and access codes can be found on Unilever's website. A video webcast and podcast of the teleconference will also be available on Unilever's website, www.unilever.com.

We will now hand you over to Mr. Cescau.

Okay. So, sorry again for the few minutes of delay. And good morning everyone here and everyone with us today, and to everyone listening into Unilever's Full Year Results presentation. Before I get into the results, a few words on some Board changes which we announced this morning.

First, Rudy Markham has decided to retire. He's 61 this year and he's stepping down at the AGM. And, Rudy, you've made enormous contribution to Unilever over the 39 years. You have been a great support in the change that we have been recently making. And I want to thank you personally for that.

You will also have seen that, following the announcement last month of our new Chairman, Michael Treschow, who will succeed Antony Burgmans, we will be proposing three new Non-Executive Directors at the AGM, Genevieve Berger from France, Hixonia Nyasulu from South Africa and Narayana Murthy from India. Also, the Board would like to thank Lynda Chalker who will be stepping down at the AGM.

Now back to the business of this morning. As usual, I draw your attention to the disclaimer relating to forward-looking statements and non-GAAP measures. This will also be posted with the text of this presentation on Unilever's website.

You will all, by now, have had a chance to look at our Fourth Quarter Results and Full-Year Results statement. And, in a moment, Rudy will take you through the numbers. But my key message this morning is that Unilever is making progress. We delivered underlying sales growth of 3.8% in 2006, up from 3.1% in 2005. It is where we had expected to be at this stage, putting us firmly within our target range of 3 to 5%, and growing in line with our market. Unilever is competitive again.

Our operating margin of 13.6% is also up. It is in line with our guidance, but, to be frank, we had hoped to do better. Our savings program for the year exceeded our expectation. But there were a number of other factors in the mix, most importantly, cost inflation. And Rudy will talk about it in more detail.

In assessing our numbers, the first point to note is that top-line growth has been my number-one priority. In the balance between growth and margin I've clearly put growth first, because it is key to sustain long-term value creation and it is also where we have been deficient in the past. And, of course, margin and cash are important, and we have more to do. But I am confident that the organization is capable of delivering sustainable margin improvement as we move forward.

In my presentation later, I want to give you an understanding of how fundamentally we have been changing the way Unilever operates, because I believe that illustrates how the results we are delivering are already qualitatively better as a consequence, and we drive further progress in 2007 and beyond.

First, let me hand over to Rudy to take you through the Quarter Four and Full-Year Results. Rudy.

Thanks, Patrick. This time I'll start with the top line. Sales in the year of EUR39.6b were 3.2% ahead, including 0.3% from favorable currency movements. By Q4, the weakening of the U.S. dollar and other currencies against the euro caused the currency effect to swing to minus 3.

The Frozen Foods disposal is treated as a discontinued operation and therefore does not impact on turnover. Other disposals reduced turnover by 0.7% in 2006, with the largest impact coming from Mora's frozen snacks in the Netherlands and Finesse and Aquanet hair brands in the United States.

Organic growth was 3.8% in the year. Q4 was slightly lower than this at 3.4%, was in line with our expectations against a strong fourth quarter in 2005. This is the seventh successive quarter in which growth has been in or around our 3 to 5% range, and is reflected in our market shares which have remained stable throughout. Volume growth of 2.8% is similar to last year, but there has been an increasing contribution from pricing through the year, reaching 1.2% in Q4.

As you can see from this chart, our growth in 2006 is broad based, both geographically and across categories. Looking first at the regions. As we said at the beginning of last year, returning Europe to growth was a key priority for us in 2006. 1% growth in the year was underpinned by a return to growth in the U.K., our largest European business. The Netherlands also had a good year. In fact, most of our major Western European markets delivered better performance. The most notable exception was France where we've not made, yet, the headway we wanted to.

Across the region, aggregate market share was stable, with gains in Ice Cream, Soups, Spreads, Deodorants and Body Care, and losses in Laundry, Hair and Tea.

The shape of our performance in Europe also reflected our growth priorities. Thus, Russia saw another year of double-digit growth, while Personal Care in Europe grew by nearly 4%.

The Americas grew by 3.7%. Within that, the U.S. grew by 2.5%, though we estimate consumer off-take in the year to have been over 3%. This reflects the impact of trade de-stocking in Personal Care at the start of the year, and in Ice Cream in the second half.

Latin America grew by nearly 6%. Growth strengthened throughout the year after a slow start. Most markets delivered good growth, including Brazil, Argentina, Central America and Andina. The performance in Home and Personal Care was outstanding, with strong growth and share gains in Brazil and several other markets.

Mexico had a disappointing year overall for a combination of reasons. A shift in trade structure away from the traditional trade, low price competition and some operational issues. These have been addressed and we expect to see Mexico return to growth in 2007. Local low-price competition also impacted our Foods business in Brazil, where we lost some share in Spreads and Dressings.

Across Asia and Africa, we continued to see strong organic growth of nearly 8% in the year. Growth was faster in Foods than in Home and Personal Care, albeit from a smaller base. Of the larger markets, India, China, Indonesia, Turkey and Arabia, all grew well.

Our strategic focus on China has resulted in growth of nearly 30% in 2006, after growth of over 20% in 2005. Australia also returned to a satisfactory level of growth in 2006. South Africa and Thailand posted weak growth, although both exited the year with stronger numbers. Sales in Japan declined in 2006, despite the success we've had in protecting our market shares in Hair.

As in 2005, our growth in D&E markets of 8% in 2006 is a major contributor to Unilever's overall growth in the year. This, in turn, is strengthening our portfolio with 41% of sales derived from D&E markets, as compared to 34% from Western Europe.

Turning now to the categories. Personal Care is another of our growth priorities. After a weak performance in 2004, we are now firmly back to where we should be, with growth of over 6% in 2006.

This category best exemplifies the combined power of big-brand ideas, global innovation and excellent local execution. All our big Personal Care brands, including Axe, Dove, Lux, Rexona and Sunsilk, contributed to this performance, driven by global innovations such as Dove 'Summer Glow', Axe 'Click', Rexona 'World Cup' and Sunsilk 'Color Enhancing'. Rexona, sold as Degree in the United States, became a EUR1b brand in 2006, having grown by nearly 13% in the year.

Home Care growth of 2.3% in 2006 reflects some very different performances within the category.

Our Laundry business across Asia and Latin America continues to perform well. Our local 'Dirt is Good' platform, which accounts for nearly half of our total sales in Laundry, grew by over 5% in 2006, driven by marketing initiatives such as the 'Back To School' campaign in South East Asia.

The All brand in the U.S. also did well, with the Small & Mighty three times concentrated detergent generating sales of over $100m in the year. Against this, Wisk in the U.S. declined in the year.

Our Laundry sales were also down in the U.K. and France, although there have been some improvement in the most recent share data in the U.K.

In Household Care, focus on innovation at the core of our Cif and Domestos brands resulted in a year of good growth for the category.

Our overall growth in Savory and Dressings and Spreads was 2.6%. Within this, our Heart Health brands grew at around 5%, with a contribution from both the core product range and Pro-Activ cholesterol lowering products. Our family spreads brands also grew in the year.

Knorr, Unilever's biggest brand grew by 4%. Much of this came from D&E markets. But Knorr also grew in Europe with share gains in Germany, our largest single market for the brand.

Hellmann's grew by just under 2%. Modest growth in North America and Europe was helped by an improving innovation pipeline, for example, the re-launch of the Hellmann's Light in Europe. However, sales declined in Latin America due to the low-priced competition that I referred to earlier.

Growth in Ice Cream and Beverages of 3.7% included a solid year of growth and global share gain in Ice Cream. That said, U.S. Ice Cream was below our expectations. This reflected the change in the market dynamics with lower promotional spending by the lead players, leading to lower market growth and trade de-stocking. Our market shares in new Ice Cream -- U.S. Ice Cream are up year on year, but fell back slightly in the fourth quarter.

We also show a good growth in Tea, with Lipton growing by around 4%, driven by a step-up in innovations such as pyramid bag flavored teas. Our Lipton ready-to-drink joint ventures, which are not included in our sales figures, grew by around 25%.

And, finally, Slim.Fast returned to growth, although the U.S. meal replacement market is still not growing. And AdeS soy-based fruit drinks continued to grow strongly in Latin America.

Let me talk now about our margin development, both in the full year and in the fourth quarter. As Patrick said earlier, although we ended the year with an operating margin of 13.6%, 40 basis points ahead of last year, we had been looking for a better underlying development.

After stripping out restructuring, disposals and impairments and the other one-off items, the change in our operating margin was down 30 basis points on the year. This was entirely driven by a nearly EUR300m increase in A&P spend to EUR5.2b or 13.1% of sales or turnover.

Our savings programs delivered around EUR900m in the year, of which about half was from buying savings and the remainder from 'One Unilever' and other initiatives. Nevertheless, both gross margin and overheads were broadly flat as a percentage of turnover.

Overheads development was more or less as we expected. 'One Unilever' savings were offset by a combination of cost inflation and planned increases in infrastructure. These included enhanced sales and marketing capability in several D&E countries, increased investment in market research and development, and the setting up of the European Supply Chain organization, based in Switzerland.

Looking forward, we expect to see overheads fall as a percentage of turnover, although we will continue to build selectively our capabilities in support of growth priorities.

Overheads may have been in line with expectations, but gross margin was not. Where competitiveness allowed, we have raised prices to recover costs, most notably in the U.S., Asia and Africa. On average, pricing is running now at just over 1%, which is close to our long-term average, but well ahead of recent years.

Despite the significant contribution from savings, increased pricing and the benefit of volume growth and a better mix, higher-than-expected commodity costs left gross margins below expectations. We incurred over EUR600m in additional commodity costs during the year, equivalent to around 160 basis points of operating margin, even higher than the 150 basis points we saw in 2005.

The prospects for Home and Personal Care input costs are now more favorable as the mineral oil price has eased over recent months. But food commodities continue to rise, especially edible oils. Overall, we expect a further increase in input costs in 2007, but not by as much as last year.

Turning to operating margin development in the fourth quarter, this year we had two significant one-off gains, totaling EUR266m, reflecting changes that we've made to pension and healthcare benefits in the U.K. and the United States. These, together with EUR41m of disposal gains in the quarter, were more than offset by a restructuring charge of EUR469m. This raises the full-year restructuring charge to just over EUR700m, or 170 basis points, versus our normal range of 50 to 100 basis points.

The acceleration of restructuring in the fourth quarter was largely in response to the need to move quickly to eliminate overheads in Europe following the Frozen Foods disposal.

Before the impact of restructuring, disposals and impairments, and excluding the pension and healthcare gains, the operating margin in the fourth quarter was 10 basis points higher than in Q4 2005.

We expected a stronger improvement in the quarter, mainly because, in Q4 2005, we had a particularly high rate of spend on A&P and on market research and development costs. A&P was in line with our expectations, virtually flat in absolute terms, 50 basis points down in the quarter.

Gross margin was slightly lower and overhead costs slightly higher than we expected. There are two factors in play here. First, commodity cost inflation eased slightly in Q4, but by less than we expected. And, second, we had another high quarter of market research and development expenditure in preparation for a strong 2007 innovation program.

I have talked about operating margin. Now let's look at some of the other earnings drivers where there has been excellent progress in 2006. The strong performance from our Lipton JVs, mentioned earlier, and the realization of profits from our venture capital investments, were major factors in a 400% rise in income from JVs and associates.

The tax rate was 24% in the year. There has been a lot of work done to improve Unilever's structural tax rate, including initiatives such as the reorganization of our European supply chain management that I mentioned earlier. This has led to a steady reduction in our tax rate over recent years and allows us to reduce our long-term guidance from around 28% to around 26%. For 2007, we expect the rate to be around 24%.

The cost of financing our borrowings was reduced by 17%, including the benefits of a lower level of net debt. The overall pensions deficit, as calculated under IFRS, has been greatly reduced by the increased cash contributions made, strong returns on assets and higher interest rates. Our overall shortfall has fallen from EUR5.6b to EUR3.1b before tax, with a small surplus in aggregate on funded schemes. Finance charge has reversed from a negative to positive and should further improve in 2007.

Against these gains, in the third quarter we took a provision of EUR300m for compensation payments relating to the 2005 conversion of preference shares. Taken together, these contributions translate into a 10% rise in net profit and an 11% rise in EPS from continuing operations.

Total EPS includes the EUR1.2b net profit on the sale of frozen foods businesses in Europe in the fourth quarter, and was up by 27%.

2006 was also another year of strong cash flow. Un-geared free cash flow increased by EUR0.2b to EUR4.2b. An increase in capital expenditure behind our growth plans was more than offset by structural improvements in both working capital and tax. We remain on target to hit EUR25 to EUR30b un-geared free cash flow for 2005 to 2010, although it should be noted that disposals have reduced our cash generation over this period by around EUR1.2b.

Turning to the uses of cash, from 2001 to 2004, our priority was to strengthen the balance sheet, restoring financial flexibility after the Bestfoods acquisition. In 2005, we stepped up the return of cash to shareholders to EUR2.3b, including dividends and share buybacks, and increased it again to EUR2.6b.

As we exit 2006, we have a balance sheet which we view as consistent with our financial strategy for a strong single 'A' credit rating. Looking forward, we are proposing a 6% increase in the total 2006 dividend. This does not include the EUR750m one-off dividend paid in December. In addition, we plan to buy back EUR1.5b of shares this year.

Our other long-term financial metric, return on invested capital, rose from 12.5% in 2005 to 14.6% in 2006. Both years included significant profits on disposals of discontinued operations. Excluding these, the return on invested capital increased from 11.3% to 11.5%.

Finally, you will have seen our outlook statement in this morning's press release. Let me reiterate the main points.

We expect little change in the business environment. That is to say, steady market growth, with continued strength in the emerging markets. Commodity costs will continue to increase, although we expect to see some easing of year-on-year increases through the year, more in HPC than in Foods. Against this background, we expect the strong innovation program in 2007 to lead to sales growth in the 3 to 5% range.

With regard to margin development, we are targeting a reported operating margin above this year's 13.6%, with restructuring in the 50 to 100 basis points range.

Now let me hand over to you, Patrick.

Thank you, Rudy. As you know, we have been pursuing a very clear and deliberate strategy and a major program of change. Today, I want to say something about the progress we are making. And I want to set out how the changes we are making are impacting on our results, and how they are setting our course for 2007 and onwards.

First, a quick reminder of where we have come from. As Rudy said earlier, Q4 2006 was the seventh consecutive quarter of growth in or around our 3 to 5% range. Prior to that, Unilever had stopped growing and, moreover, were losing share to our competitors. We knew that in order to put the Company back on track we had to address fundamental issues and make fundamental choices. And we did both.

Inevitably, there have been a number of elements to the change program, but there are, essentially, two building blocks. Everything we have been doing falls under the heading of a new growth strategy and a new organization, and ways of working to support that strategy. Both are essential and both are delivering.

Let me start by saying something about our growth strategy. In my introductory remarks, I made clear that growth has to be my number-one priority. But not growth based on quick fixes. Sustained, profitable growth, derived from a stronger portfolio. That has been our guiding principle. And the first thing we had to do was to make clear choices, to choose where to play.

We set priorities and concentrated our resources on building more leaderships positions in high-growth spaces. And this has helped to deliver results in the short term, but, critically, it is improving the shape and quality of the portfolio over the long term.

And let me remind you of the choices that we have made. First, to focus on developing and emerging markets where our leading positions are a unique source of strength for us.

Second, to build categories where we have strong global or regional positions. And this includes several of our Personal Care categories, like Deodorants, Personal Wash, Skin Care, but also include categories such as Savory, Ice Cream and Tea.

And, third, the Vitality space. We know that in every category you have a growth space, which, in our case, is increasingly about health and wellness, and that is Vitality. And this is true both in developed and developing markets. And this explains our emphasis on brands that make people look good, feel good and get more out of life. And that's why capturing the opportunity in Vitality is the third of our priorities.

And these are our priorities. And, at the risk of over-simplifying, it's about D&E, it's about Personal Care and it's about Vitality.

At the heart of this strategy is a concentration of resources behind our growth priorities. And that -- that is why three quarters of additional A&P spend went, in 2006, behind these priorities. And the results speak for themselves.

Growth in Personal Care had stalled in 2004. In 2005 and 2006, growth was in excess of 6%, back up with the best of our competitors. And, in developing and emerging markets, we achieved growth of around 8% in 2006.

As importantly, and for the future, the share of turnover in these priority areas is also growing. The D&E market, for example, has increased from 36% of turnover two years ago to 41% now. And Personal Care has gone from 25 to 28%. And that is what I mean when I talk about improving the quality of our portfolio.

And I can illustrate that at both the categories and the brand level. You know already, of course, the story in Deodorants, a global category with market growth of 6% a year. We are the global leader, growing at double digits and increasing share consistently over the last five years.

What you might not know quite so well is the story of 'Dirt is Good', our laundry brand. From a disparate collection of brands with various positionings, we have created a EUR2.5b brand platform, one with common technologies, common advertising, common R&D and common innovations. And, by the way, it grew last year at 5%. As a matter of fact, our 12 [$1m] brands grew by nearly 5% in 2006, a clear demonstration of the power of focus.

Now what does that say about the rest of the portfolio? Well, every part of the portfolio has a clear role to play, either for growth ahead of the market, or to provide the funds to fuel growth in the more attractive high-growth priority areas.

Take Household care. Strong in Europe, but not a global priority. Yet, through focus, clear targets and the freedom to operate, the category grew last year by an impressive 6%. And with the part of the portfolio that didn't fit, we have been prepared to make disposals. Fine Fragrances in 2005, and Frozen Food in 2006. Overall, we're driving for a portfolio of global brands, growth categories, leading share in faster-growing markets. Again, improving the quality of the portfolio.

Let me turn now to the other key elements of our change program, and that's about creating a new organization and introducing new ways of working.

As with our growth strategy, we have not been tinkering at the edges. The changes have been fundamental, and they are still taking effect. I'm not here to tell you that the process is complete. There is still a lot to do. What I can tell you is that there is mounting evidence that the organizational changes are having a positive impact in our performance.

The overriding objective behind these changes has been to align the organization behind the strategy. And the first steps we took were to create a more professional and thoroughly interdependent organization, category leaders and customer managers who are expert at what they do, not 'jack of all trades'.

And this is about clarity of roles, categories to deliver global platforms, regions to execute and make it happen on the ground. And the result has been better category strategies, better quality mixes, delivered faster and more reliably.

Take Hair Care in North America. Before, we had a fragmented portfolio of weak brands. Over recent years, we have totally revamped the portfolio. We've sold several minor brands. We have strengthened Suave, the U.S. volume leader, with a better mix and a compelling value proposition. We have launched Dove, and followed through with the kind of pipeline of innovations you get with a major global brand. And, as a third step, we have launched Sunsilk, a EUR1.4b brand worldwide.

As a result, we now have a powerful portfolio of big brands, backed by global resources. And that's a better platform to build upon.

The effect of these changes has also been to deliver better, more powerful and more differentiated innovations. If you had looked at our portfolio of innovation projects during the previous couple of years, you would have seen a number of global projects, but also a lot of medium-size or small projects. And it meant that much of our effort was applied to only a handful of markets. We were not fully leveraging our scale.

Bringing a category together with single point responsibility for the totality of innovation for that category has meant we eliminate overlap. We can take several ideas, which, individually, might have been okay, but, together, become a much bigger idea to put our muscle behind.

So the fewer, larger projects get scale and better resources, and the projects become more visible and more impactful. Take Dove Pro.Age for instance. Building on the remarkable success of the 'Campaign for Real Beauty', Pro.Age is the first collection of beauty products especially formulated to meet the skin and hair needs of women over 50, launching simultaneously in the U.S. and across Europe as we speak.

And the examples are not confined to HPC. The same thinking is taking root in our food brands, as with our Family Goodness brand, Blue Band/Rama, the first margarine to contain nutrients to support mental development, a breakthrough innovation, already in nine European countries and rolling out further in 2007. Or Knorr Bouillon, which we have totally rejuvenated across 11 European markets and which will be on shelf across the whole of Europe during 2007.

So, in the new Unilever, we have category people focused on better category management, better brand mixes, better R&D and bigger and better innovation. And, equally, we have our people in the regions, free of distraction and able to concentrate fully on their consumers and their customers.

Now the next stage was to provide them with the tools to deliver. And we have, therefore, focused on building our capabilities in two mission critical areas. One, brilliant consumer marketing for our category organization. And, second, win with customers for our go-to-market organization.

In the past, winning with customers was not always in Unilever's DNA. Execution was seen as something less exciting. Well, the world has changed. We are putting in place the people and the tools to build performance partnerships with key customers, deploy shopper insight into innovation and brand activation activities, maximize on-shelf availability, drive down costs, and improve customer profitability via focus and efficient trade spend. Really fundamental changes, and backed up by new people, a new mindset and better systems and processes.

And we're getting positive results. Our customers, first, tell me they see the change, a more responsive and competitive Unilever. We now feature in the top group in the U.S. Cannodale Survey. And we've just learned that we have won Wal-Mart's prestigious Vendor of the Year in two important categories, Health and Beauty, essentially covering our Hair, Deodorant and Personal Wash brands, and The International category, which is a powerful recognition of Unilever's strengths globally. And our business with key customers is growing ahead of our average, and profitably. Again, focus and quality of delivery.

In marketing, we have always had great people and numerous examples of world-class work. But we were not always able to leverage the best of our brand development skills everywhere. But no longer. We are building world-class capabilities, orchestrated from the top down. And we are leveraging performance by moving the best people around, cross-fertilizing between Foods and HPC.

And, for example, the leader of Dove responsible for the 'Campaign for Real Beauty' is now running Knorr. We are creating a pool of talent with a more global orientation. And, again, we are getting results. At this year's Cannes Advertising Festival, for example, we won 37 of the prestigious Lions, three times as many as our nearest competitor. So, we have clarity of roles and we are giving people the tools to do the job.

What ties these things together is a highly disciplined approach to execution, and we call that strategy into action. It means that we now translate the top Unilever growth and profit priorities into local priorities in action plan for each of the categories, regions and countries.

So, today, when I look at the priorities and plans for Russia, for example, for 2007, I can track exactly how Russia is working to the agenda of the priorities that we have set for Unilever overall. I can check that the categories will deliver the brand mixes for the country, and I can see how it is working in the marketplace. This is absolutely critical for performance management. And the whole organization can now sing from the same hymn sheet.

These changes have, of course, helped to pave the way for radical simplification. Part of this has involved implementing the 'One Unilever' program, one big operating company in every country. And that job is now 90% done. But it has also meant reducing the number of people, and de-layering, especially at the top and middle management levels. We needed an organization that was more nimble and able to deliver at speed.

There are many ways in which this is working in practice. The most telling example, perhaps, is the dramatically reduced distance that now exists between me and our key markets and brands. Take our business in China, with sales of over EUR600m.

In 2004, China was Unilever's 20th largest business, growing at about 11%. It had three companies, each with its own go-to-market model. The three business leaders, in turn, reported to two regional leaders, who, in turn, reported to two divisional heads. Today, China is a single 'One Unilever' retail business, connected directly to the category structure, influencing brand and innovation plans, with one leader reporting directly to a member of my team. It has moved up to 15th in our league table, and grew by nearly 30% in 2006.

Equally, there is only one person between me and the global Knorr brand manager. De-layered. Simpler. More effective.

And simplification saves money to invest in growth. Our supply chains are becoming more global or regional, with responsibility for managing them shifting away from local markets, so that the people on the ground can concentrate solely on the customer, on delivering the plan.

We have started in Europe, with a regional supply chain based in Switzerland. Harmonization, common specs and also common processes are all unlocking further untapped savings. Thus, our buying savings continue to run at around US$100m per quarter. And we are outsourcing non-core activities like transitional -- transactional services in HR and in finance, as well as in IT.

The last element in how we are transforming Unilever relates to our behaviors and culture. And, in many ways, it is, of course, the most difficult area of all and one that takes time. We have two key ingredients. First, absolute clarity on the behaviors and the culture that we want to foster in Unilever. A total Unilever team mindset. And we've done that. We now evaluate and reward our top leadership also according to these behaviors.

And, second, it was essential to inject new blood, internally and externally. Internally, by shaking up key positions. Starting in 2005 we began evaluating our top 200 managers. 70 have now gone. Many of the rest are in new positions.

Across Western Europe two-thirds of our country leaders are new in their jobs since the beginning of 2005. And, where necessary, we are refreshing the gene pool by bringing in new blood from outside, for example, in Human Resources, in Customer Management and in our U.S. operations.

This story taken together, I hope, describes why we believe we are making a fundamental change and lasting change in the way Unilever operates.

Let me conclude. The message I want to leave you with is that this is a massive program of change. Not all of it is visible to the outside world. But it is starting to become visible in our results. However, there is still a lot more to do. I fully recognize that.

My agenda for 2007 is more of the same. Growth remains the number-one priority. But we don't just want to grow. We want to grow competitively ,and that means getting market share. We want to grow profitably, and that means with better margins development and further simplification. And we intend to perform consistently, not least in Europe where we are determined to build on an improved performance.

hat is our agenda. And it is how we plan to unlock Unilever's long-term potential and deliver the shareholder value we have promised.

Thank you. Rudy and I would now be delighted to take any questions. We hand you over to John Rothenberg to take you through the logistics.

[OPERATOR INSTRUCTIONS].

[OPERATOR INSTRUCTIONS]. For those of us here in the audience at Goldman Sachs, please press the button on the microphone console in front of you before asking your question. Please could you also identify yourself to us by announcing your name and organization that you represent? Then please press the button again after your question to turn your microphone off. And if we could try and take single-part questions that will give us the opportunity to get more questions answered.

Thank you. Can I have a look? Sandy.

Good morning. Sandy Soames from Cazenove. Patrick, you spoke of refreshing the gene pool. I just wondered in the search for the new CFO whether you will be duel-tracking this both externally and internally and whether the new Chairman we'll be involved in the process?

First question, absolutely. We will look for the best candidate, that's a process which is already underway and one that I have agreed with the Nomination Committee. The Nomination Committee drives the process. I'm sure the Chairman will be -- who I have discussed about the issue, will be involved. I don't know to which extent. But I think the process has to be very clear, as I've described, best internal or external.

Martin?

Yes, Martin Dolan from Execution. Can I just follow up that one and ask as this is the first outside Chairman for Unilever, can you give us some idea what his scope is, how many days a week or a month you expect him to work at Unilever and what his overall scope in terms of driving the business could be?

As much as necessary. He brings a lot of experience, international experience, European experience, restructuring experience which I intend to tap into and expect support for the strategy, turnaround strategy, the recovery strategy. The quality of the partnership that we both perform is absolutely critical. And I intend to [use] a lot of it and I intend to have him as a partner.

I don't know whether that translates into number of days. He has made absolutely clear that he will be available to me and spend time which is necessary to impact and be my partner in the change in Unilever.

John?

John Parker from Deutsche Bank. Patrick when you talked about the organizational strategy I was a little bit surprised when you said there's still a lot more to do. You put in a new organization strategy. You're saying it's working pretty well. What more is there to do in that respect, if I understood you?

What is more to do is that neither you nor me are interested in input, we're most interested in output. And more to do is to translate the progress we are making into stronger numbers. I think we are doing that in top-line growth, I think I feel very confident we're firmly in the 3 to 5 range. I want now to see the benefit of this new organization, simpler organization, [delivering] organization, also improved margins. There's where I want to work harder.

Second point, Europe. In Europe I made progress, we are 1%, we were 3% two years ago. But that's not where I want Europe to be. And that's not where the leadership team in Europe wants to be. I want more growth. I want better margins. I want better innovation. And I think that -- (indiscernible) I don't think that I'm satisfied.

I'm satisfied with the progress we are making, but I'm not satisfied this is where Unilever should remain. That's what I mean. There's no plumbing issue really which is there. If I see further opportunities for driving more productivity savings around the organization, I will do that. But it is certainly not, let's say, a challenge to that what we are doing currently.

We've made a number of announcements of things resulting from the simplification, the outsourcing of shared services, for example, in Europe, the outsourcing of our HRC program, the introduction of 'One Unilever' companies, the creation of the European supply chain. These then successively, because they have to sequenced, executed. And what Patrick is empathizing is that the benefits of those come progressively through as we look into 2007 and beyond. And, as we do that, we'll also have the opportunity to refine them further.

Take one more from here and then I'll turn to the air. Julian.

Julian Hardwick from ABN Amro. Rudy touched on the outlook for commodity costs this year, I wondered if he could talk a little bit about a couple of the other important drivers for margins in terms of the quantum of cost savings that you're expecting to deliver. And also, clearly one of the themes last year was a significant increase overall investment behind the brands both in marketing and other areas. How do you see that evolving this year? And I just wondered if you feel confident enough to say that you would expect to deliver an improvement in underlying margins in 2007?

Well, let's just talk about growth and margin and leave the commodity costs. First our outlook at 13.6% is an indication of an underlying improvement in margins clearly between 10 and 50, 40 basis points. And that is what we are looking for.

As far as the growth strategy is concerned, we continue to invest competitively in our brands. Clearly we've seen that our growth strategy is one where we allocate resources in very specific areas to win market share, and that we continue to do. So after the costs, and its market development, Rudy?

Yes, thanks Patrick. On the commodity side we've already indicated that we expect continuing pressure, but maybe easing a little bit. We have other savings, of course, in gross margin that we're looking for from the supply chain rationalization. Aome of the benefits of restructuring that we have delivered during the course of 2006 play into that. In terms of indirects we have our ongoing savings program and also we hope to get bit in offsetting the impact of cost inflation also in the whole area of indirects.

The last point I need to make, just in terms of judging our performance, we also have to map the impact of the one-off that I've announced in the fourth quarter for the U.S. healthcare and the U.K. pension. So we have to work hard, but we're confident that we can improve overall our operating margin below -- above the 13.6% that we outlined that we achieved this year.

Fine. I think I'll go to the telephones and then we're come back to the hall. I know there's a couple of people who already indicated they wanted to come on afterwards. Can I take the first one from the lines please?

Yes, of course. It comes from John McMillin at Prudential.

Good morning. Patrick it's early over here and maybe I need your brain development food quickly. I'm a little taken aback by your statement you said you're where we expected to be, but then at the same time you said we hope to do better. And I'm just a little bit at loss with those differing statements in your prepared remarks, what you meant by it. And if you can just quantify where you hope to be in this fourth quarter on a margin basis versus where you were.

Yes, thank you John. I think two things. One, we continue to invest at high level in market transition development. And if you remember, last year in the same quarter we had considerable spend. We continue in the fourth quarter to invest at high level, that is one.

The marketing spending was exactly as we planned it. My disappointment is that I was expecting our gross margin to be a tick higher in Asia, Africa and in Europe. The price increase in Europe was 10 basis points, particularly lower than the 30 basis points that we had in the third quarter. An improved trend in the year but still below what I'm expecting in terms of margin recovery. And that's where, if you want, from our expectation I would have wanted the margin to be at higher level.

You were on target from a sales standpoint in this fourth quarter?

Yes. By and large we were on target. 3.4%. The third quarter had a strong input for Ice Cream. We had a strong comparative in 2005, just to know we were up on the a day-by-day basis [north of 5]. 3.4% was in the range for me this quarter. We didn't have a surprise.

A lot of the better companies in your peer group, whether it's Colgate or Proctor, or some of the better food companies, Kellogg, they aim low and then shoot high. And it goes back to your sales increase in the middle of last year. Ff you want to be a consistent, reliable Company, to aim as high as 5% in sales and then you come in at 3.4% it just almost leads to some disappointment, do you understand?

John, I indicated it would be somewhere in the range of 3 to 5%. I hope I didn't give the impression that I thought 5% was, in fact, the target in the guidance. Our market grew around 3 to 4%, depending on pricing, depending on the mix that we have.

We are in the situation currently where we have restored competitiveness in Unilever, and we are aiming at gaining market share. And gaining market share is essential to be able to move from 3% type of Company to a 5% type of Company. We're not there. We're not at 5% sustained performer. That -- I'm sorry if I gave the impression of starting that. I'm certainly targeting to improve within the range of 3 to 5%, but we still not at this stage a 5% Company, John.

Okay, thank you.

Take another one from the air please.

Thank you very much. We now have Marco Gulpers from ING.

Yes, good morning still to you. I've got three related questions. You mentioned, Patrick, that you were still not satisfied about Europe. And you highlighted there to be especially disappointed by France. Is that the only country that you see some disappointing performance? And could you also reveal to us which categories would you like to see some improving trends in '07?

The second question I would have is on innovations. You mentioned the strong pipeline. If you were to index 2006 at 100 how would '07 look like with respect to the innovations that you're planning?

Finally, [Ricketts] this morning mentioned that they will be seeing limited pricing for '07. And I was just wondering what your expectations are for Europe in that respect? Thank you.

Okay. First Europe. When I say I'm disappointed, I see that as energizing and not lamenting because I see real progress in Europe. As I say 1% for the third quarter which closed to 3%. In fact, underlying, when you look at the mix of countries you see profit everywhere except in France. U.K. which was a weak performance 2005 turned positive. We also saw progress -- continued progress in Germany. France remains one country where we have not seen as much progress.

In terms of the categories, a lot of good news. I simply indicate the two I expect more progress in 2007, that is Laundry and that is Hair Care.

And that leads me rightly to the point of innovation. We are coming, with Laundry, with important innovation on the market as I speak. And if I would measure -- by the way this innovation is more than likely 3 times Comfort Detergent which we are launching in Europe this year.

It is worth taking, I don't know whether it will in terms of exact numbers, but I would definitely tell you that there are two changes in innovation, [some] for 2007. One, we have bigger innovation, harder-hitting innovation and we have more. So a better portfolio, I will not venture a number, but certainly indicates that our firm doing in better quantitatively and qualitatively.

As for pricing I think we must distinguish two different realities. One is Oral and Personal Care and one is Food. Oral and Personal Care, they clearly they have been, especially looking at the petrochemical prices, we expect a more favorable pricing environment, cost environment. And that, together with the pricing we took in 2006, should indeed be a better basis from which [bid us]. Full different story because we continue to see volatility on costs and input costs increases in Food and we have to address this through either better productivity and savings or we will have to address that through price increase.

I will take one more from the telephone line please.

Thank you very much. We now have a question from Thomas Russo of Gardner Russo.

Hi. Good morning, Patrick. You talk about in the emerging markets a comment made about Mexico and about Brazil. In Mexico it was the shift away from the traditional channel. And in Brazil it was the rise of the price competitors.

And within Mexico, the shift away from traditional might suggest a movement towards the modern channels which might be Wal-Mart in the market, in which case one would think you might have picked up the improvement through your strong relationship with Wal-Mart. So talk about the impact of the shift from the traditional channels in emerging markets and then those two markets in particular.

Well there are two aspects to the change. The first one you exchange a very long supply chain with very -- with good level of stock put it this way to a very short supply chain with very reduced level of stock. That, in addition, forces you to reorganize your distribution operation. Operationally. It isn't about distribution, you change the term. And that creates an environment which we need to manage effectively.

In some cases we did that well and in others we do that less well. In any case, we see disconnect between consumer sales and our wholesales as a shift in trade is taking place. And indeed Wal-Mart has been a player in this market.

I understand. So it's really a transition period adjustment that you're going through --

Absolutely.

Rather than loss of consumer spending dollars.

I don't think there is anything fundamental there apart from the mistake we made ourselves. But in such a transition, it's a challenge to move and you break some eggs in the making. But I believe now, as I indicated, we are coming out of this operational issue and expect progress. And indeed Mexico showed progress at the end of the year.

And then in Brazil, how -- through what channel is that increased price competitive offering going to market?

That's mainly food. And the price structure in Brazil is less a matter of the pricing but a matter of taxation. They are -- the tax situation in Brazil, the tax has been changed, regionally organized, a regionally shaped design. And you face local competitors that can take advantage of such situation. Add in that issue for the cost structure and for the direction, low-cost producer and try to drive similar product at much lower prices and margins. And the combination of the two means, especially in Food, more competitive theme.

HPC is a different story because of the strength of the brand, less penetration of the private label and somewhat lower price elasticity. The quality of our present marketing and the strength of our brand is also second to none there.

Thank you.

Thank you. We will return here and we'll go back to the lines later. So please keep your questions coming on the lines. Tim.

A question on the buyback, I think Rudy mentioned in his prepared statement that the point -- I want a clarification here really. Rudy mentioned a buyback for calendar 2007. Now, if my memory if it's right, seems to suggest that the buyback would start in January 2007. So is this a calendar event now going forward?

Well spotted. That's absolutely correct.

It is, for 2007.

Yes.

Yes, okay. Thank you.

2007. Didn't identify a month. David.

David Lang of Investec. Unilever recently has been talking about 50% of sales coming from D&E markets in the foreseeable future. Last time it talked about this, back in 1997, shortly after it talked about it last time it made a substantial acquisition of a business with very large European sales. I'm just wondering how you're addressing the issue of portfolio management going forward. Should we expect the Company to devote its improving cash generation towards share buybacks rather than acquisitions given that it's going to be pretty difficult to buy anything of any merit or size in D&E markets?

Let me just frame our acquisition strategy as it stands today. First we said the priority is to restore the course, competitive course. The priority was to develop ourselves organically. We then said that merger and acquisitions had a role to play to enhance the portfolio change. We indicated that we would consider, what we call, bolt-on acquisitions which we would clarify being acquisitions we'd be able to find ourselves.

Clearly our acquisition strategy has to be aligned with our business strategy. And then these should exclude local businesses in non-priority categories. And, indeed, we said that acquisitions we would be looking at would have, of course, enhanced shareholder value, that's an important point I want to come back in a second, enhanced shareholder value and be about developing an image market, be about vitality, be about personal care. And also not anything else because that wouldn't make sense, wouldn't it?

And the same thing for disposal. It will be strange for us to dispose of businesses with strong personal care or D&E or else [without being confident].

Now I talked about shareholder value because it's not sufficient to have a good acquisition strategy to be able to deliver. And currently, as you know, I find it more a buyer market -- a seller market than a buyer market. And as far as the result of the acquisition strategy until now, we did not deliver any valuable, any visible assets.

We have an increase through the dividend and the share buyback our return of money to shareholder and we continue to watch that space, continue to look for acquisitions that fit our strategy and continue to look for shareholder value, and find the right balance. Does that answer the question? I'm not going to comment and give more [inaudible]. That's the ongoing question.

[Inaudible] targets in the developing and emerging markets are pretty few and really quite small. Really I'm asking whether we should expect you to prioritize buyback rather than perhaps another fairly large acquisition in the Western Hemisphere which would kick the balance back towards the slower growth areas.

I think I said we would only acquire what makes sense from a portfolio prospective and generate additional underlying growth. We're not looking at scale for scale, on that I want to be very clear. And I'm not going to comment to this [enhancement] to shareholders, whether planning [inaudible], to look at it but it's clear that [inaudible]. We are within balance sheet, we are within our metrics and we need the money to work to generate money for the shareholders, one way or the other. That has been our strategy and it makes the framework for anything we do in that space.

Thanks very much.

Andy.

Hi, Andy Brown from Cedar Rock Capital. In response to John McMillin's question, you said that Unilever's not yet in a position to think of itself as a Company of 5% growth and that you're not there yet. Now is that a comment on the state of the market for mergers and acquisitions? In other words would have to re-shuffle your portfolio to put yourself in that position? Or is this just something that, in long run, that Unilever would like to maintain that position just through hard work on your existing businesses?

We certainly -- and I'm sorry to give the impression, we have not intention to remain a middle-of-the-range-type of group performer. There are two elements for driving our underlying growth potential.

One, increase the underlying potential of our portfolio. How do we do that? We do that by very selectively putting the resources where they either [increase] the geography, that's D&E, or a category in which we are global leader and we can leverage our scale. That in turn is going to mean that a higher percentage of our portfolio is going to be in Personal Care, grew at 7%, D&E market 6% -- D&E market grew to 8%. Unless mathematically in Europe, Western Europe is reduced.

Second we say we'll add to this organic growth model. We're going to add merger and acquisitions as and available which, basically, should help us activate further our footprint in high-growth spaces and categories where we in a very strong position.

The two together should propel organically and externally our ongoing growth potential. There's a third item which is becoming even more competitive and ultimately benefit from a higher underlying growth of our potential but to be able to effectively capture share from our competitors. And this is where we seem to make progress.

These two elements together means that we are going to move from a 3 to a 5% Company. That is the ambition that we have. And I want to very clear that where we are today, 3.8%, improved from 3.1%, and have the ambition to be better than that. That's where we are currently.

Jeff.

Jeff Stent, Citigroup.

Hi Jeff.

The March seminar, will the new Chairman be having some input into the material that's conveyed there? And, if not, will the existing Chairman be having any input into the material that's conveyed there? Thanks.

I discovered late in the game that there was also speculation about the March seminar. I have not thought that far away, that cleverly yet, Jeff. When I thought, I realized that there's a need to deepen the understanding of that what we're doing to explain, with real examples, more examples, the nature of the change because not all the change is going to be concentrated in the numbers. And not all of the change is visible. So my number-one priority was to go deeper, better into the explanation of that what we are doing.

It goes without saying that in the induction program of the new Chairman I am going to make absolutely sure, and I have already discussed with him, that he knows where I am going, knows what my priority is. I'm confident, I hope that he is going to give me full support. I don't think Antony will have -- will get involved in what is, after all, an executive matter. And that's a strategy, in any case, which are shared with the Board and has the full support of the Board for the direction we are taking.

Thank you.

Thank you Jeff. Are there anymore questions in the room? No. So have we anymore questions on air at the moment? Okay then. I think if you'd like to just -- Tim has another question.

Tim Potter, Goldman Sachs. Thanks very much. It's relating to the marketing R&D investments in Q4. Whether this is -- how much movement there was year on year and whether we expect this to be an annual event, upload investment ahead of launches in the ensuing year?

I don't think that should be an annual event. I think currently there's a momentum in our organization towards more innovation, accelerating the populating of our innovation funnel to 7, to 8, to 9. We've put in place a new organization which is humming, which is developing. We have more ideas. We get more opportunities. We get more development and market research then we anticipated.

And we thought that if growth is our priority, growth strategy is a priority, that's not one area where we should restrict opportunity but rather [inaudible]. And, in my mind, the somewhat lower spend in advertising and promotion in quarter four in terms of the money spent was a nice counterpart in thinking that -- and still continuing to invest at high levels in the brand.

I might see that more as we come into power, full power of our category organization, develop appetite. And frankly there was even that bit for more than what we take in response. There was no other accident or lack of control. It was deliberate decision to open the door to more investment for the future.

Okay, with that, thank you very much for coming. You need to see [inaudible]. If you come to Time Square you will see what we are doing there. I hope to see many of you at the seminar where, again, I want to deepen our strategic comments. On track, priority, maintain the growth and deliver improved margins.

Thank you very much.

Ladies and gentlemen, this conference has been recorded and details of the replay numbers and access codes can be found on Unilever's website. An audio, webcast and podcast will also be available on Unilever's website www.Unilever.com. Thank you very much. Good morning and good bye.