聯合利華 (UL) 2007 Q4 法說會逐字稿

Welcome to Unilever's fourth quarter and full year results 2007 conference call. This conference will begin with a presentation by Mr. Patrick Cescau, Group Chief Executive, followed by Mr. Jim Lawrence, Chief Financial Officer, concluding with a question and answer session hosted by Mr. John Rothenburg, 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.

Thank you. Good morning everyone and welcome to Unilever's quarter four and full year 2007 results presentation.

I'm joined this morning by Jim Lawrence, our new Chief Financial Officer, and by John Rothenberg, our Senior VP for Investor Relations. And in the audience Vindi Banga, who's our President Foods, Ralph Kugler, who's our President HPC, and also Harish Manwani, who's in charge of Asia, Africa, Middle East and Turkey, and Dave Lewis who's the head of our business in the U.K.

As usual, I would like to draw your attention to the disclaimer relating to forward looking statements and non-GAAP measures. The disclaimer is included here and will be posted with the text of this presentation on Unilever's website.

In a moment Jim will take you through the details of the results for the year. The starting point is that 2007 was a good year for Unilever, marked by a strong business performance, organic sales growth of 5.5% and an underlying margin improvement of 0.2%. Growth was again broad-based, but it was also of good quality reflecting, as it did, the priorities we have set for the business.

Hence, we saw a further redirecting of our business towards faster growing D&E market and another strong performance from our Personal Care business with growth of 6.7%. Yet, at the same time, 2007 witnessed a strong contribution from our Food categories and benefits coming through from restructuring, especially in Western Europe.

Reflecting the strategy we have been pursuing over the last three years, the last 12 months were also characterized by bigger innovations, rolled out faster and across more parts of the world, a greater role for technology delivering real consumer benefits and further increases in the level of investments behind our brands. We also saw an increased contribution from pricing during the year and a higher rate of savings following the accelerated restructuring program we announced in August last year.

So, the key message for 2007 is one of improved performance. That only tells half of the story, because the results we've announced today are underpinned by and directly attributable to the significant changes we have been making to Unilever itself, both to our organization and to our ways of working. We are today a leaner, more agile, more globally oriented business.

Our One Unilever operating model is up and running in every major country and is being extended to a series of multi-country organizations across many parts of the world, injecting even greater speed and simplicity into the organization. We have considerably streamlined our management and brought new people and new ideas.

We've also raised the bar when it comes to critical capabilities, like marketing and customer management. We are leveraging science and technology much more in support of our brands and categories. And we have put a ruthless focus on improving our executional capability.

We have got further to travel in all of these areas, but the progress is clear and the impact on our performance is obvious. So, for all these reasons we believe we remain on track to achieve our 2010 growth and margin targets, despite a tougher economic and cost environment.

Of course, we are not complacent about the challenges that lie ahead. But Unilever today is a more resilient business than before, better placed to meet the challenges and, indeed, the opportunities of operating in more uncertain times.

I will say more towards the end of the presentation about how we are approaching the year ahead, but first Jim will walk you through the details of our performance in 2007. Jim?

Thank you Patrick and good morning everyone here and everyone listening and watching.

As most of you know, I joined Unilever in September this past year. By that time Patrick and his team had already laid out Unilever's strategy and priorities for the next few years, including the accelerated change program that was announced back in August. I think actually the day after my own appointment was announced.

Now, I joined the business believing that this strategy would transform Unilever's performance. Just over five months into the job, I am now even more convinced that we have a great opportunity ahead of us, notwithstanding an uncertain, possibly more difficult business environment in the immediate future. Our 2007 results underpin this confidence.

It was our third consecutive year of accelerating organic sales growth to a level of 5.5% underlying sales growth in the year. We finished the year strongly with a markedly better performance in Europe. At the same time, we saw a resumption in underlying margin improvement of some 20 basis points. With input costs rising sharply throughout the year, our pricing actions and savings programs have been critical to achieve this outcome.

We saw an increasing contribution to earnings from joint ventures and associates, and from our good management of tax and balance sheet. We generated free cash flow of some EUR3.8b and we increased our return on invested capital to 12.7% from 11.5% in 2006. That, of course, excludes the profit on the sale of frozen foods in that year.

EUR3.7b of cash was returned to shareholders throughout the year through share buybacks and dividend payments. And we are announcing today a 7% increase in our 2007 annual dividend and a share buyback program of at least EUR1.5b in 2008.

Now, let's look at the numbers in a little more detail. Our sales in Q4 were EUR9.9b, which is 1.7% ahead of last year and it is after a 0.8% reduction from disposals and an adverse currency effect of 3.4%. The latter reflects the strength of our reporting currency, the euro, against a wide range of currencies, including the U.S. dollar and sterling. This left turnover for the full year at EUR40.2b, or 1.4% up.

Underlying sales growth in 2007 was 5.5%, a material step up from 3.8% in the prior year. Growth has been consistently strong across all four quarters. Q4 was a strong finish to the year, with growth over 6%. Pricing rose steadily through the year, as we took steps to recover commodity cost increases. And the pricing power of our brands has been proven and has strengthened over the past couple of years through, first, a stronger and more consistent flow of innovation, second, systematic improvement in product quality, and third, increased marketing investment behind the brand equities.

Determined pricing action did have an impact on volume growth in some markets, particularly in the United States and Latin America. However, Unilever's volume growth remained robust overall with 3.7% for the full year and 3% in quarter four, which reflects the strong volume growth in our D&E markets and a welcome return to volume growth in Europe. Our growth was broad-based across all our regions and all of our categories and reflected our differentiated portfolio strategy and our allocation of resources.

In Europe underlying sales growth was just under 3% in 2007, which is up from 1% in '06. Q4 growth was 5.5%. And, even allowing for a prior year comparator, which was weak, and a small boost from trade buying ahead of SAP implementation in the U.K. and a January price increase from Germany, we believe this was a good performance overall for Europe.

We have seen improving year on year trends across Europe. Russia has been a star performer with growth in the high teens. All our major European business grew in 2007, including the U.K., Italy, Germany and the Netherlands. Sales in France were up marginally, but still better than the decline in 2006 in what remains a challenging market.

The improvement has not been driven by a big step up in A&P investment. Rather, it has been driven by a relentless focus on innovation, on improving quality and value of our product offerings and on better execution in the market place. It also a direct reflection of a business that is now fit to compete. Patrick referred earlier to Unilever's change program and nowhere is the pace of change greater than in Europe.

To put this into context, in just the last 12 months we have sold the Boursin business. And earlier this week, we agreed to buy Inmarko, the leading ice cream business in Russia. We have announced the closure or stream-lining of 10 factories in the United Kingdom, in the Netherlands, Sweden, France and Spain. We have formed four new multi-country organizations, U.K./Ireland, Benelux, Germany/Austria and Switzerland, and finally Czech/Hungary. And we rolled out SAP to the point where it now covers two-thirds of our European business and it will cover all of our European business before the end of this year.

It all adds up to a significant step up in productivity and it's feeding into our margins. There was an underlying improvement in our European operating margin in 2007 of 90 basis points.

Turning to the Americas, full year growth in the Americas was 4.1%. In the United States the overall growth of our markets has held up pretty well, notwithstanding the economy there. In the second half of the year we've seen slightly weaker demand in Personal Care in the United States. There has been some softness in out of home channels. But in contrast, we have seen quite strong demand for food products which are used in the home, such as meal kits and side-dishes.

Against this background, our U.S. business delivered growth in the year of just over 3%. This included good growth across most of the food categories and personal care, and a much improved performance in home care.

In North America ice cream, however, we did have a poor year in North America. We are making root and branch changes to our business model here. And while it causes us some short term pain, we believe it will support a more consistent, sustainable growth going forward.

In Latin America we got off to a slow start in Mexico and Brazil, but our performance has picked in both markets. Full year growth was 5.6% and well over 6% in the fourth quarter. Operating margin was down 40 basis points on an underlying basis, in part due to increased marketing investment, but also reflecting the impact of substantial cost increases absorbed.

Increased commodity costs have been a significant issue everywhere, but especially so in the Americas. We have moved decisively to increase prices across many categories and markets, which has led to significantly higher price growth in the second half, but with lower volume growth.

The pace of change is also significant in our Americas organization. Over the course of 2007 we have sold our Brazilian margarine brands and the Lawry's seasoning business. And we have progress the disposal process for our U.S. laundry business. We have implemented further One Unilever integration projects across the United States, Brazil, Mexico, Argentina and some other countries. We have implemented SAP across the majority of our businesses in North and South America. And we've continued to build critical capabilities, for example, setting up a new team in the United States to provide our customers with innovative shopper insights.

Turning to Asia Africa, strong growth in Asia Africa of over 11% reflects both the vibrancy of the markets and the high priority that we have placed on building our business in this region. Here our focus is on bringing the full scale and power of Unilever's branding, technology and innovation to bear in some of the fastest growing consumer markets in the world.

We have been building on existing strong category positions across the region, such as Laundry and Personal Wash. And we also seek opportunity to introduce new brands and products for our consumers across the region. Global mixes like Clear anti-dandruff shampoo, which we've successfully launched in China, in the Philippines and in Arabia, and new product forms, like Knorr bouillon gel and pyramid tea bags. And the investment is paying off. All our major markets in Afica and Asia are growing strongly. They're led by India and China, but also include Indonesia, Philippines, Turkey, Saudi Arabia and South Africa.

Our traditional strength in Home Care and Personal Care in these markets is now being complemented by strong growth across our foods categories.

In summary, all three regions have made excellent progress with implementing our change program and raising the quality and speed of our go to market operations. However, they can only do so with strong brand and exciting innovations that allow them to go out and win with customers and win with consumers. This is where our global category teams are now making a difference.

Across each of our four category groups, we saw growth driven by renovation. That is the strengthening of existing brands with new variants, new packaging, new advertising and innovation, new products and new mixes.

We've stepped up our innovation over the past couple of years in a number of ways. First, more rapid roll-out across key markets, one of our top priorities in 2007 was the simultaneous launch in seven countries of Clear, a hair care brand with superior anti-dandruff technology. This included three of the biggest hair markets in the world, China, Russia and Brazil. In all markets, the brand Clear is winning consumer preference and exceeding our expectations.

Second, faster deployment of new technologies, Hellmann's Extra Light, for example, uses citrus fiber technology to give consumers a great tasting yet very low fat mayonnaise. It's a higher margin product and that's important at a time of increasing edible oil costs.

Third, a better transfer of mixes across continents and cultures. After only six months Axe is already the brand leader in male deodorants in Japan. And finally, Vitality-focused innovation, which targets consumers' desire for healthier options in eating. Lipton Green in the United States, Lipton Linea slimming teas in Europe, Lipton milk teas in Asia, all leverage tea as the healthy beverage.

Now, there are many other examples which together have helped to drive the growth of our categories in 2007 and will continue to drive growth in 2008.

Just a few headlines on the performance of our categories. Savoury, Dressings and Spreads grew 5% for the year. Knorr, which is our largest brand, came close to hitting EUR4b in sales. Hellmann's growth accelerated to 6% helped by effective advertising and the success of that extra light variant, which I mentioned a moment ago. Spreads finished the year strongly with our Goodness of Margarine campaign, a program of activities, which promotes the health benefits of margarine.

Ice Cream and Beverages grew at 4.2% in 2007. Lipton had an outstanding year, with double digit growth in systems sales, not sales which are recorded on our top line. System sales driven by the kind of innovations I mentioned earlier.

Ice Cream also had a good year. Frusi, a frozen yoghurt packed with fruit and cereals, did well across Europe. Also in Europe, we improved our coverage across the price points with premium offerings, such as Magnum Temptations as well as the roll out of Ben & Jerry's, and then at the other end new value packs for more price conscious consumers. And in Asia we had success with Moo, a brand that boosts children's calcium levels.

Home Care had a strong year with 6.1% underlying sales growth. We had a good year in Fabric cleaning including the roll out of Small & Mighty in Europe and Latin America, continuing our drive towards more efficient, more environmentally friendly and higher margin concentrated liquids. In Fabric conditioners new premium variants, new fragrances and our new fresh release technology all helped to drive sales. And we had another successful year for our household cleaning business with brands like Cif and Domestos growing -- helping it to grow at 9%.

Personal Care was once again Unilever's fastest growing of the four categories with 6.7% growth in 2007. As well as the roll out of Clear, which I mentioned, we had another year of double digit growth from Axe and Rexona. We had a new Pond anti-ageing range in Asia. We had a continued flow of innovations on Dove building on success in the self-tanning segment and driving the multi-countries, multi-category launch of Dove pro.age.

So, that covers what I wanted to say about the drivers of our top line performance. Let me now turn to other aspects of our financial performance and I'll start with operating margin.

Our full year operating margin was 13.1%. That included EUR875m of restructuring charges, which were partly offset by disposal profits of EUR306m, which leaves a net charge equivalent to 1.4% of sales in the year. Excluding restructuring, disposals, one-time gains in the prior year and those were from changes in pensions and health care plans we had an underlying improvement in operating margin of 20 basis points.

We continued to spend competitively behind our brands throughout the year. Advertising and promotions rose in line with sales in 2007. We had an increase of EUR260m in constant currencies. The majority of this increase was in brand building advertising rather than in consumer promotions. We're getting more bang for our buck, as an American might say, more global advertising meaning fewer, bigger campaigns, which allow us to get the best out of our advertising agencies, spend less on production, produce fewer higher quality films and copy. And that then frees up money to spend more on media time and space.

The impact of commodity costs during 2007 has been the highest we have seen in many years, with the full year impact of EUR900m. I'm going to say more about commodity costs in a minute. We have, however, been able to manage this unprecedented cost pressure thanks to consistent growth and mix improvement through pricing actions and our savings programs. Our combined savings programs have delivered close to EUR1b in '07. Of this close to EUR500m was from buying savings, around EUR300m from accelerated restructuring program and EUR200m from ongoing efficiency programs.

Looking at the fourth quarter, our operating margin at 11.1% was, again, 20 basis points higher than last year, with a similar aggregate level of restructuring disposals and one-off items in each year. The shape of our margin delivery as we exited '07 is indicative of how our business is able to navigate through a worsening cost environment by using our pricing power, raising prices, sustaining investment behind our brands to secure consistent top line growth and mix improvement, to delivering a continued high level of savings through our global buying and restructuring programs.

Now, turning to commodity costs, as expected we saw another sharp increase in commodity related costs in quarter four, which was the equivalent to an on cost in the quarter of EUR330m or 330 basis points. There were some reductions during the year, olive oil for example, and some commodity costs have shown signs of passing their peak, such as dairy which has come off.

However, there are -- these are small for us when you compare them with the increases we see in edible oils and fats and other agricultural commodities, in petrochemicals, in packaging, in transport, almost anything with a significant energy component.

As things stand today we expect to see similar, if not higher, rate of increase than we saw in quarter four. And we see that well into 2008. It may be that we'll see some sign of easing of global demand for commodities as we go through the balance of the year, but we do not expect to see much benefit from this until much later in the year, if at all.

Below operating profit we continue to drive improvements in a number of areas, which have a substantial positive impact on EPS growth. Net financing costs were significantly lower. That came through lower interest on our net borrowings and better funding position on our pensions. Our share in net profits from joint ventures was increased by 30% in the year driven by strong growth in our ready to drink tea partnership with PepsiCo. I mentioned the top line of that business a moment ago.

Our full year tax rate was 22%, which was helped by a number of one-offs and particularly, a lower tax rate on disposal profits and that took us below the 2006 rate of 24%. We do believe though for 2008 that we should expect a tax rate which is closer to our long term guidance. And that's 26%.

Finally, it's worth noting that in 2006, as you make your comparisons, we took a EUR300m provision, which related to the conversion of preference shares, which had been done back in 2005.

All of this led to an increase in earnings per share from continuing operations in 2007 of some 12%.

Let's now turn to the balance sheet and cash flow. Our financial strategy targets a competitive balance sheet with a strong single A credit rating and that puts Unilever in about the median of our peer group. It strikes a balance between optimizing our cost of capital on the one hand, while making sure that our financing does not become a constraint on our business strategy.

We have reviewed this carefully. We have concluded that we've got the balance about right. And, in fact, the recent credit crunch has refocused many minds on the benefits of a favorable access to debt markets and reinforced the importance of longer term perspective. And I just say, for instance, that throughout this recent turmoil from August through the fall, we have maintained a sizeable and low cost commercial paper program, which is very much in the interests of our shareholders.

Our cash generation continues to be strong. In 2007 cash flow from operating activities was EUR5.2b. That was EUR400m lower than '06, which reflected higher cash costs of restructuring and our accelerated contribution to pensions. Working capital improved in 2007 for the third year in a row. During the year we invested about EUR1b net in capital expenditure.

Our net debt at the end of the year was EUR8.3b, which is up from EUR7.5b year end '06. That change in net debt includes the impact of dividends, which totaled EUR2.2b returned to shareholders, as well as EUR1.5b of share buybacks.

Our net pension liability at the end of December was EUR1.1b. And this is down from EUR3.1b at the start of the year, driven by accelerated funding contributions, I mentioned a moment ago, and by a higher discount rate which is applied to the calculation of long-term liabilities.

As we move forward, we are recommending a final dividend of EUR0.50 per NV ordinary share and GBP0.3411 per PLC share, which will raise our fullyear dividend by 7% on both shares.

We are also going to continue with share buybacks with a plan to buy back at least EUR1.5b of shares during 2008.

Patrick, back to you.

Thank you, Jim. You will have seen from our press release this morning that we are confident that 2008 will mark a lot of steps towards our 2010 goals, for an operating margin in excess of 15%, while delivering consistent competitive growth along the way.

In 2008, we expect underlying sales growth to be towards the upper end of our 3% to 5% range. And to see further underlying improvement in our operating margin.

We are clearly facing a more challenging business environment in 2008. And I want, therefore, to wrap up by giving you my perspective on how I see the year ahead and why I believe that Unilever is well placed to meet these challenges and to exploit opportunities that may arise from a changed scenario.

Let me start with the macro-economic environment. There is no doubt that some kind of economic slowdown in the U.S. is now underway. And, judging by recent forecasts, we should expect to see slow activity growth in other economies during 2008, especially in Europe.

However, we expect the aggregate growth rate of our market in 2008 to remain strong at between 4% and 5%. There are two reasons why we can be positive about the outlook for growth.

First, and fortunately for us, consumers still want to eat and wash, even when discretionary expenditure is tight. As Jim mentioned earlier, belt tightening by consumers does lead to changes in consumer patterns. But the breadth of our category and brand portfolio, which straddles price points, channels and different consumer needs, means these shifts in consumer behavior are as much an opportunity as a challenge as we enter 2008.

Second, we benefit from a broad geographic exposure, including our strong presence in Asia. And while we could see the large emerging market economies come off their 2007 peaks, we expect to see strong growth in these markets during 2008.

And now another area of uncertainty is commodity cost. As Jim said, this will be a significant challenge in 2008 but, as we have shown in 2007, we are equipped to deal with it.

Over the past three years we have changed our business models in a way that make us more resilient. We have a stronger innovation pipeline. We've invested more behind brand equity and in product quality. And this today, gives us the pricing power to -- we need to pass on cost increases while maintaining market competitiveness.

And we are a leaner, fitter, faster Organization, better able to respond quickly to challenges and opportunities in the market place.

We are also well underway with our accelerated restructuring program that will deliver significant productivity gains over the next few years. We have a robust operating plan for 2008, based on realistic assumptions about the business environment and a strong program of innovation and marketing.

And we have a clear set of business priorities, which has governed our plan since 2005 and will continue to do so.

Firstly, maintain our competitiveness in the market place and deliver consistent top line growth.

Second, to draw out a sustainable margin improvement, keeping us on track to deliver our longer-term financial growth.

And, third, to invest selectively in getting market share where the opportunity arises and where the return on the investment is attractive.

So, a resilient business model, a robust operating plan, a clear set of priorities and a continued commitment to delivering shareholder value. We, therefore, enter 2008 from a position of growing strength, clear on what we need to do, and on track to deliver our objectives.

And, with that, we'd be happy now to take your questions.

Fine. We've got three sets of questions - people here, we've got people coming in on telephones over the air, and we're also getting in some on text messaging. So, a -- which we'll bring in if there are any that haven't been covered already on air.

So, for those people here, if you could pose your question by dialing star one on -- sorry, those via the teleconference (OPERATOR INSTRUCTIONS). For those on line, there are instructions on your screens. Here in the audience, please press the button on the microphone console in front of you before asking your question. Please could you identify yourself to us by announcing your name and the Organization you represent. And please press the button again after your question to turn off your microphone.

Hope you got that.

Okay, so three sets of people. And Patrick will start here.

Yes, morning. It's Martin Dolan in London from Execution. Can I just clarify something, if we can, in that there were some comments on newswires this morning that you said that you expected moderate growth in Europe in the first quarter, and also a slowdown in the -- in Americas, which doesn't seem to tie up with the top end of the range guidance. Were you misinterpreted this morning, or are you seeing a slowdown in the first quarter already?

Jim will answer the question because he was on the newswire. But (multiple speakers) before he does that, let me just be absolutely clear that we stick by the guidance that we've given. And I'm very confident we're going to deliver it.

Now to the newswire, Jim.

I -- we commented on the fourth quarter in the Americas, and you've seen the numbers which I just reviewed for the Americas. And we said, notwithstanding what we've seen in the last quarter, we go into the new year across all of our regions confident that we'll be at the upper end of our guidance.

We were asked whether the growth in Europe could be sustained from the fourth quarter in the first. And we commented that probably about 50 basis points of the growth in Europe was due to the pull forward in the U.K. with the SAP implementation, as well as accelerated buying in Germany with price increase coming on January 1.

So we said the rate of growth we saw in Europe was a little bit flatter by that. And we also commented that we saw price coming through in Europe which we've not seen through the first three quarters. We're very pleased by that. It has not affected volume in the fourth quarter. Volume still good in Europe. But the pricing has just come through and so you don't know exactly what the trade off will be to the price and volume in Europe in the first quarter.

So whatever it was that was said values what is being said, and we remain with our guidance, an upper end of 3% to 5% for the year.

And as for the business point plus or minus, this is something you should keep in mind, Europe had a very good performance in quarter 4.

John.

Yes, good morning. John Parker from Deutsche Bank. You commented that you expect the commodity costs to be going up at the sort of running, higher running rate, we've seen in the fourth quarter, as you enter the new year. Can you give any corresponding guidance on your costs savings?

It looks to me as though there was a bit of a step up in the level of cost savings in the fourth quarter. Total for the year you said about EUR1b. If one assumed that sort of stepped up rate and the fourth quarter ran through into '08, you'd see a higher level of cost savings in '08 compared with '07. Is that a reasonable expectation, or can you give any sort of indications on that?

It is certainly a very reasonable expectation. Our cost savings in the fourth quarter were in excess of 300 basis points, so very strong. And we feel confident that we'll attack 2008 benefiting from the cost savings program for the (inaudible) that reflects exactly what we said about expectation that they would (inaudible) come in at high level well into 2008.

Thank you. And then I've got one more quick question. Are you going to say anything about the phasing of the performance through 2008 at this point? You've obviously given guidance on sales growth and margins for the full year. Do you --? Is there anything you want to say about the first half being stronger or weaker? Or I mean, obviously, you've got an early Easter, you had a poor Q3 last year, is there any -- anything at this point you want to guide us to on phasing in 2008?

There's nothing we'd like to do by way of guidance quarter-by-quarter for the year. We'll give you the full-year guidance, we feel good about that, the full-year guidance.

Charlie Mills, Credit Suisse. I wonder if you could give your thoughts on pricing in 2008, given those commodity headwinds, and obviously what looks like a pretty rapid pick-up in price through the quarter, the course of 2007?

Jim will take the question on 2008. Let's just wrap up 2007. We have seen healthy and increasing contributions from prices to our top line. The good news is that the balance, in terms of volume and price, was a good one. We delivered in 2007 a better volume growth than in 2006, despite price increases which were considerably higher. And, in the last quarter, have volume, have price frailty. And, in Europe, the best volume performance that we have had during the year, two thousand and (multiple speakers).

Yes, as for 2008, we'll have rollover of price increases we've taken through the course of '07. As I mentioned a while ago, we took some prices in Germany right at the start of the year. We'll not be commenting on specific plans we have for specific categories, specific countries, over the course of the year. But I would expect that we will be taking pricing in particular categories, in particular countries over the course of the year.

And all of that is part of our confidence in saying that, along with the top line guidance that we've given, we also are giving guidance of underlying margin growth in 2008.

I would like to add something, Charlie, not on the costs and price, it's been well covered. But we are playing with different levels when it comes to getting back at some of the cost increase. And a couple of things we've done, and I spoke about the technology, we are driving more technology-oriented innovation on our market.

We have also been putting innovation, a clear good example at much higher price point, clear is a price point 160 against a market average of 100. We are also encouraging in specific category the conversion to -- from certain types of products to others which are, in terms of margin, much more favorable.

The best example would be concentrated detergent. One of the reasons for improvement in margin in 2007 in Laundry is because we are aggressively driving concentrate rather than dilute. And all that is part of the instrument because we only want to pass on to the consumer that part of the pricing of the cost increase which we cannot get in other ways, especially with higher value offered to the consumer.

Okay.

(Technical difficulty).

Can you get your light on? Sorry, I'll come back to you right away. Can you hear now?

Yes.

Okay.

A question for Jim on the disposal program. You've only actually executed EUR200m of revenues out of the EUR2b. Can you maybe comment on whether that's still on track or is there a risk that perhaps some of the businesses that you've outlined could perhaps be retained?

And, just as an add-on to that, if the proceeds do come through, and if the disposals are executed, could that cloud your thinking on the buyback assumptions as those proceeds come through? That's the first one.

And the second one is on Latin America. I note that quite a big pick up in performance in the second half of the year relative to the first half. Can you maybe outline what's driven that and whether you -- we should expect that momentum to continue into '08? Thanks.

Sure. Let me give you the answer to the last question about Latin America. Indeed, you did see a pick up through the course of the year. And it was particularly true in Brazil, which has been a strong grower for us over the years. It's one of the new markets which should lift Unilever's growth generally because of the development of consumer products in that country.

But we started off the year slow. But, through the course of the year, we've picked up speed, and we certainly are carrying that through into the new year. And we feel confident about Brazil.

A similar story is true for Mexico where we'd started slow and has ended strong. So we feel good about Latin America going into the year.

As to your first question, there are two parts to it. I'm going to take the second first, which is proceeds from disposals, obviously you can't count on them, you can't count on when they come, how much they'll be. And so we're not making commitments today for what we will do with those proceeds. That would be imprudent.

But I would note that we have said that as the share buyback program we will do at least EUR1.5b. And obviously an option for us, when and if we get proceeds of whatever amount, is to use it to take EUR1.5b at least to something more. But today is not the day to say what those proceeds would be or what we will do with them.

As to the process, we announced back in August, six months ago, that over the next couple of years we would dispose of EUR2m of top line sales. We have said very clearly that we will dispose of them for a value-creating price for our shareholders.

Thus far, we have announced two deals. We have announced Boursin, and we've closed the sale of Boursin. And we've announced Lawry's, and that sale is pending.

We are in the process of disposing of our North American laundry business. And, other than that, we've not cited anything else and we will not until we have actually either gone public with the sale process or we have concluded a sale.

Yes.

Thanks. It's Polly Barclay from Cazenove. Just a follow-up question on pricing. In Q4, we saw volumes plus 4.2% in Europe and negative 0.3% in the Americas. Can you just give us a bit more color on the pricing environment, specifically in Europe and the Americas, and the volume impacts, and how you see this playing out in '08? Thanks.

Well I will do Europe and Jim will do the U.S. It looks appropriate.

I think somewhere in the speech we said the toughest environment for price increases is Europe. Well, the factor that we should add is that we had our best performance in Europe in quarter four with the highest price increase. We are one point -- to 1.3 up. Elsewhere being negative during the year. But also the best volume performance of the year at a bit excess of 4%. And even (inaudible) the 40, 50 basis points Jim talked about, it was a good solid performance.

Well, there surely will be a bit of correction, but, at this stage, we have been able to keep a healthy balance price and volume. And one of the reasons, I believe, is the improvement that we have made both to our go-to-market, but also to increasing quality of our offering, product offering that is.

In Europe, specifically, we reduced marketing spending. So the turnaround is not derived from massive spending with the consumer or the customer. It is good housekeeping and innovation, as well as go-to-market.

As to the U.S.

Well, the U.S. and Americas (technical difficulty) make the distinction. We took some very significant price increases through the year, and in particular in Q4. And it was reflected in the mix between price and volume in the Americas.

We feel good about the contribution that the Americas will make in '08. As I commented before about Latin America, we have seen an acceleration in Mexico and Brazil. That's, notwithstanding Brazil, some very significant price increases as commodity costs were up sharply there.

So we continue to feel that we'll achieve appropriate price realization in the Americas. We'll see growth in Americas which will contribute to our overall upper end of 3% to 5% for the year.

Before we move on here, we'll just --

Take -- we'll take a couple through the air and then come back in here, if that's okay. Can we take one from the air please?

Thank you. Yes. We now have a question from Marco Gulpers of ING.

Good morning, all. Two questions, if I may. The first is on your guidance on commodities moving from a run rate of 330 basis points into '08.

Could you also update us a bit more on your hedging policy for '08? How much are you going to see as a positive or a negative impact on those?

And the second question is on your guidance. You signal a lot of ambition for fiscal year '08 to move to the upper end of the 3% to 5% range. This bodes on which assumptions exactly again? Maybe you can clarify to us again on why you were so optimistic on your guidance for '08 to reach the top end of the 3% to 5%? Thanks.

Let me answer this question, and Jim will take the question on commodity.

First, over the past two to three years we have dramatically changed the shape of this portfolio, and especially the new portfolio, and especially the exposure to developing in emerging markets. Our portfolio momentum has improved. And that is here to stay, with a 44% value plus going forward, developing in emerging markets.

Second, we have strengthened our business in terms of the quality, in terms of the investments behind the brands, and that, in turn, gives us pricing power.

Third, we have a very broad footprint when it comes to the sort of product that we have. We sell to consumer with two products a day, and we sell also to the very affluent consumer.

We believe, and I (technical difficulty) comment that, in the growth of the market in 2008, there will be a pricing complement which we have seen in 2007, which is still going to be significant. So that we see the growth of our market between 4% and 5%. And we believe that within that range we are competitive, and we believe -- and that it is appropriate to share this (inaudible) optimism with you and the upper end.

As to input cost inflation, just to reiterate the guidance, we saw 220 basis points increase over the course of the year, 330 in the fourth quarter. The rate of increase that we've seen in the fourth quarter, we expect to see out into 2008.

And we do hedge certain of our commodities. We hedge them when we think we can buy at a price today which will be better than the prices in the future. There are some commodities which we cannot hedge even if we have the point of view as to what the prices will be in the future versus now.

All I can say as to what we have done is that we have hedged certain of our costs. And we have concluded that we can give you guidance for underlying operating margin increase, notwithstanding those input costs through the course of the year, due to what we see of those input costs, due to savings programs, restructuring that we have been doing - we continue to do, buying savings that we have, and other operating efficiencies, combined with the pricing which we've talked about at some length already.

Final follow-up question, if I may. Just as a confirmation on your tax rate guidance, that was 26% for the fiscal year '08. Is that correct?

That is correct. 26% is both a long term tax rate guidance. We were well below that this year because of the tax consequences of certain disposals, as well as we got some -- we were able to take away some provisions because we got favorable audits for past tax years. Absent that, we'd have been closer to the 26% long term.

What we're saying for '08 is we expect, at this point now, that it will be at that longer term 26% rate. But, again, you never know exactly what audits are going to come in, you don't know -- you have to take things on a quarter-by-quarter basis, which you used to be able to smooth. So it's a -- our guidance, it's also our expectation, but there's -- can't be certainty about that sort of thing anymore.

Sure, sure, sure. Thanks.

Thank you.

Is there more on the air?

Yes, we now have a question from Jan Meijer with Theodoor Gilissen.

Yes, guys, good morning. Jan Meijer at Theodoor Gilissen. I've got a question on the restructuring costs. Last year you stated that the normal level was between open 5% and 1%, this year it's 1.4%. What are your expectations in '08 and '09? Thank you.

We have, in August, a clearly indicated step up in our restructuring program. We have guided towards about EUR1b a year. We came a bit short of this amount in 2007 at about EUR900m. I think EUR1b is, at this stage, the number that you should focus.

We have taken some distance up to 2010 with this open 5% and extend a rational of an active restructuring program in August with our results.

This time, Xavier.

(Technical difficulty).

Got a question in, Patrick, from Michael Steib. Do you see any signs of consumers trading down to more value-oriented brands, such as Suave, in light of the weakening economic outlook and price increases? Thank you.

No, we don't. Suave, interesting enough, had a good third quarter. And if you asked me the questions at the end of third quarter I would have said I see some sign for item Suave, which is our value, value proposition in the U.S., but the fourth quarter was unremarkable. And then across the portfolio, at this stage, we have not seen a trading down by consumers.

And, again, we've been very, very intent in improving the quality of our offering and that, surely, is part of the answer. The more quality visibly you offer to consumer, the greater the opportunity that they will show loyalty to the brand. When you have value propositions it's unclear that's the temptation to go, and to go to lower prices.

Remarkable, also, for me this year, was the performance of our Spreads business, which is really where you see normally this trading down in place. We finished the year close to 4%, and not because of the quality these were. They had another unremarkable year, but the core of the business, what we call the family goodness deliver us a result. And that's normally a place where we see right away the impact of down trading.

So, long answer. Short answer is no.

I think Xavier has been queuing for about half an hour.

Xavier Croquez, Exane. I have two related questions on market share trends. In '07, you have a growth volume around 3% to 4% -- 3.5%, 4%, is this broadly the trend you would guess was the market trend, volume trend, you have been in 2007?

And if you could give a bit of color in terms of market share trends by categories or zones, Western Europe in particular.

And the second question. Entering '08, you've said 4 to 5, which probably implies flat value shares. What are your assumptions in terms of volume trend in '08? Is it down versus '07 significantly?

Let me first talk to you about market share. I know that's a subject which always attracts a lot of interest (inaudible). First of all, depending on the sort of product, volume share doesn't make any sense. You don't sell [guilder] by the kilo. It's all about value. So the main reference for market share is value market share.

Globally, with a growth that was 4 -- 4.5%, I think, right again, globally in line, that's where I believe we are. Global footprint I would say we tend to win in areas where we're investible out, like Asia and [pevroltaire], weaker in some developed markets. And I say example in Europe and some categories in the U.S. where we have contracted the money spent. Altogether, I'm satisfied that we are competitive, and if you look at 2008 and what we have said in terms of strategy, our first priority is to maintain competitiveness. And that, in plain language, maintain our overall value of market share. For my team, it means something very different for Harish Manwani here for Asia than for (inaudible) or even (inaudible) in the U.S. And in order to achieve that, we deliver the resource according to this priority, in a very, very disciplined way.

The second priority is to seek improvements in operating margins, because that's the biggest lever for us in terms of GSR.

The third area is to actively increase market share. Now, the situation in 2008 is uncertain, because the price and costing increases we talked about are industry costs and price increases.

There is some question mark about exactly the volume of money which is going to be spent. We expect more release in volume of money spent behind the brand competitively, but I don't know what's going to happen.

So as far as the overall matrix is concerned, maintain our competitiveness, number one, see an improvement in operating margins, number two, selectively depending on the return and that is our priority, seek for increased market share. It's not the moment, necessarily, to go gung-ho into looking for extraordinary market share, or the extraordinary income. It is not the priority that we have set for the company.

To make sure, if you assume that you have been flat shares in '07 and you will have basically flat shares in 2008, it implicitly means that you have a significant slowdown in market growth, implicit in your assumption '08, '07.

We've said market growth would be 4 to 5, I believe we said that, and I believe we will be the upper end of 2 to 5, so it doesn't necessarily follow that we have a substantial lower market growth, somewhat slow market growth, certainly not, to a point which endangers our objective.

Julian Hardwick, ABN Amro. Patrick, in your presentation, well, maybe Jim in his presentation, highlighted the issues in the U.S. ice cream business. I wondered if you could just go into a bit more detail about what the problems there, and did I understand the implication that we shouldn't expect to see U.S. Ice Cream improve materially in the short term, as you go through the restructuring of that business?

And my second question is for Jim. If I take on board some of the, sort of, negative headwinds you've got in more financial areas, such as tax, currency, dilution from disposals, it would seem to me as though you're probably going to struggle to deliver much in the way of earnings per share growth this year. Is that a fair assessment?

I can answer the first thing, the first question. Jim can give you the appropriate answer to the question which is more complex, so I am interested in the first question.

North America Ice Cream. The first thing to say, before we talk about 2007, is that North America Ice Cream has been an outstanding success story for Unilever, and an extraordinary amount of value delivered.

But latterly, in 2006 and '07, is a change in competitive dynamics. And a new business model, in which it is less reliant on promotion, less reliance on street fighting. Much more on the agenda, because of the changing competitive dynamics, innovation, technology, branding. We're talking exactly about the business model that we have.

You will remember it was a very separated, isolated, not simply physically, if you've ever been to (inaudible) you would understand what I'm talking about. The (inaudible) business products. We should have an opportunity now, because of the change in competitive dynamics, to change our business products, so we are now moving to a one (inaudible) model and, similarly to any other organization in Unilever in the world, for, combined with the food business.

We're changing the go to market approach, moving from a very dedicated sales force to using the full power of our go to market in the U.S. which I'll remind you has been voted best vendor by Walmart, which we're very proud of. And, more importantly, use the full weight of the global work that Vindi and his team are doing, and I'll ask him in one second to comment a bit on that.

In the process what we've done, we're cutting the money on promotion, we're bringing the pricing up, and we're seeing much more of innovation in our industry. Changing people, changing leadership, changing everything that can be changed. Through this transition, we had a marked improvement in the fourth quarter, also a bit flattering for me, because they improve a bit more than I expect them initially to sustain that rate. But I would expect, certainly, a better year in ice cream as we, Unilever, drives this company in line with any other. The benefit for us is obvious, and Vindi is going to talk about the opportunity to leverage our global organization. Vindi, who is our President Foods.

Thank you, Patrick. Patrick has already talked about the North American business, so let me tell you a little bit about what's happening on the global ice cream business, which we can then use to bear on our situation in North America.

We have had a good year in ice cream in Europe, and very good growth in the rest of the world, and that's been driven by a lot of innovation, and it's been driven by innovation led by activities across the whole price spectrum.

So we've had very good, high quality introductions at the top end of the market with the Magnum range, the new variants, which have proved very successful, excellent quality, upgrading. We've had very healthy options, like Frusi, which we've talked about, which is a mix of cereal, yogurt and fruit.

We've also had, internationally, overseas, a product like Moo which you see there, which is the child's third glass of milk. So actually, you see a lot of innovations across the price spectrum, and with vitality at its heart. All of these are backed by a proprietary technology that Unilever has, and I think that is our big opportunity as we change the model in the North American business from being very much more of a promo-led model to the classic model that I've just described.

As to the earnings per share, we are in a transitional mode right now at Unilever, with disposals, with gains on disposals, with restructuring charges, with an accounting gain from achieving the ownership of our South African and Israeli business with our partner, and so we'll not give guidance on EPS. We do not think EPS is the best measure of Unilever's performance today, nor will be in 2008.

I went through an explanation on how you got to the particular EPS we got to in '07 and, obviously, you know, relative to '08, you should expect restructuring charges. You may see gains on disposal, you may not see gains on disposal. I've decided the tax rate. But it will be a couple of years before EPS, as reported by IFRS, pure, simple, is a fair measure of what the earning power and what the progress is of Unilever. Between now and that point, we believe what, and certainly what we're looking to as metrics, are top line growth and underlying operating margin improvement.

Hi, Martin Deboo, Investec. Can I, Jim, just build on your answer to that question? You indicated when you joined that you would take the opportunity to sort of reappraise the financial performance regime and, if appropriate, introduce new metrics. I would infer from today that you've concluded that change isn't necessary. Can you comment on that? It's a question less about guidance. It's a question about the metrics per se.

Yes. As to metrics, I do believe that the best measure of us now is the top line revenue growth. I think it also needs to be measured against the market growth, and are we gaining, holding or losing share. I think that's an absolutely vital metric for our company. I think, second, the underlying operating margin is critical. You know, is the money that we're spending in restructuring, is the changing organization to one Unilever, is that delivering a greater real earning power? Of course, paying lower taxes is a good thing to do and, of course, good financial management below the line is important. We will be going to do that as we go along. We just don't think that when you get down to the bottom, the EPS line, that that's going to be particularly important, because it's going to be so overwhelmed by the restructuring charges and the gains on disposal so, for the moment, I don't think, I do believe we will get to a time when EPS is again an important metric. And I will be the first to say, here's what I think we ought to be targeting for and tracked against. I don't believe the time is now.

I have also looked not just at the income statements, but at the balance sheet and we have a policy today of maintaining A+ rating. That is consistent with having funding which is about half short, half long, which lowers our cost of capital. I think that is a good thing to do.

I believe, though, it is only prudent to do that if you maintain A1 P1 short term rating, which we do. Within that constraint, though, we are able to fully fund our restructuring program, fully fund our CapEx, grow our business in a good way, and we're able to pay dividend which will increase by 7% this year and provide a very attractive yield relative to the share price. And there's still cash left over to do at least a 1.5b share back in this year.

And as we enter this year, I think that is a whole set of actions which is sensible for the shareholder in the short term. It's prudent for the shareholder in the longer term, and in terms of maintaining strength and flexibility.

Hi. It's James Edwardes Jones from Execution. You had about 240 basis points of cost savings in 2007 on the back of about a 210 basis point restructuring charge. How long can you sustain cost savings in excess of your restructuring spend?

And, as a follow up, can you just give us the number for the aggregate underlying revenue growth in VNE markets, please?

Well, the first question, you noted the average in the year. I think that also noted the acceleration which takes us to 300 basis points. As for the VNE market, the growth was around 10%. We had 11% in, 11% plus in Asia, around 6% in Latin America, with the fourth quarter well above six. So that's the underlying growth if you want in 2007 for both the VNEs.

And as to the, coming back to the restructuring program, we've shared with you the yield on the investment that we are making. Jim said that about EUR300m from the EUR1b saving we made in 2007 was just a follow up, following up the accelerated restructuring program started media. The share of that particular restructuring, of course, includes in 2008.

The other comment that, probably, you saw is the strength of our buying savings. It is not simply because raw material or else will be more expensive. It is much more because all this simplification, harmonization of the business gives us much more bargaining power and much more leverage in terms of volume, and then the opportunity for us with the simple portfolio, reorganized portfolio, to leverage our scale.

And there is no reasons than any of that would not continue in 2008. It may continue at a pace which depend a little bit, of course, for negotiations with our social partner, is a program of reshaping of manufacturing activities in Europe and also in Asia South. I feel good about our program and we will be able to match, we've got the right balance for the commodity, cost increase, and return the value we promised we would return from the restructuring.

Sorry, just to be clear, can we expect savings in 2008 to be running around the 320 basis point level that you achieved in Q4?

I'm not going to answer in terms of basis points. Let me try to answer your question differently. We delivered about 1b of savings in 2007. I see similar numbers for 2008. Now, you can calculate basis points and make assumptions from all the others. But we feel good about it. Otherwise, we're not talking about much improvements. John is saying to me that we've got to watch the time now.

We're at the end of your time, because you've gone a bit, we can only take one more question. We've got questions on the air as well, and we'll have to take them up with the IR team afterwards, so if we can take one last question, Patrick.

Hi, it's Chris Wickham from Main First. Just going back to the area about scope for down trading, I mean, presumably when you're seeing indirect costs rise, the actual percentage difference it makes to cheaper products pricing is going to be larger than it is for the premium brands like yourself. How closely do you track, or can you share with us your findings about how much the percentage price difference between your products and generic/cheaper alternatives is narrowing, and whether that's a feature of the resistance to people trading down?

That's a very good thought. Depends on the our cost structure, but if your costs of input is 70% of your selling price for (inaudible) or Else, low cost producer, and it is 40% for us, in terms of percentage increase, we would cover the same absolute increase. There is a difference of, say, four to seven in this particular example, so a significant difference.

We follow that very carefully, because what we're very careful about is the distance in the price structure. In any one of our categories, we look at price point, price point top, middle, bottom. It's more complicated, but let's, and of course, we want to be competitive in each and every one of these sectors.

So the way we're going to follow is effective price, but we're going to see at the bottom of the market and try our strategy accordingly. But you're absolutely right in the analysis that in time of increasing raw material costs, a graded manufacturer with a different cost structure can be at an advantage because the price increase they're going to do in percentage is lower than the (inaudible). Alternatively, of course, when prices are going down, the reverse will apply. One more question from the room?

I will take it. Stop now, Patrick, we have lots of questions.

I have been advised that, so, in concluding, good year, yes, a challenging 2008, but we feel that what we have done over the last couple of years leaves us well-placed. We're not naive. We know it's going to be tougher out there, but we feel good about the performance and feel good about our plans for 2008. Thank you very much.