聯合利華 (UL) 2013 Q4 法說會逐字稿

We are about to hand over to Unilever to begin the conference call. (Operator Instructions). We will now hand over to Mr. James Allison.

Well, good morning and welcome to Unilever's fourth quarter and full-year results presentation. It's only been six weeks since our annual investor conference here in London and, based on feedback that we've had from many of you, we've decided to keep things efficient for you and us by using the conference call and webcast format for the presentation, rather than invite you all back here again quite so soon. As ever, we'll make sure that we leave plenty of time for all of your questions at the end.

The presentation of our results this morning will be given by Paul and Jean-Marc. Paul is going to share his reflections on the year as a whole; Jean-Marc will then cover the financial performance; and Paul will finish by highlighting some of the areas where we want to step up our performance in 2014 and beyond.

As usual, I draw your attention to the disclaimer relating to forward-looking statements and non-GAAP measures. And with that, let me hand over to Paul for his opening remarks.

Thank you, James, and happy New Year to everybody. I hope it will be a rewarding and healthy one. Let me start with my perspectives on 2013. I will summarize it as another good year, consistent, profitable and competitive top and bottom line growth.

We again delivered against the priorities we set out. We grew ahead of our markets with 4.3% USG. That's about 55% of our business-building share. We also improved core operating margins again, this time by 40 basis points, with 110 basis points increase in gross margins. That's the highest since over a decade.

We delivered strong cash flow of nearly EUR4 billion, thanks to a further improvement in working capital and control of capital spend. This, together with strong discipline around tax, capital management and an increased shareholding in listings of our subsidiaries, translated into double-digit EPS growth in constant currencies.

Now the quality of growth is good. We, again, increased investment behind our brands by moving our support up by EUR460 million. Strong brands are getting stronger and we now have 15 brands with EUR1 billion or more in turnover. That's up from 11 only 5 years ago. This year, we actually welcomed Signal to the list.

We also continued to invest in building organizational capabilities with the opening of the state-of-the-art Singapore training center, the personal care [Pitch] center in London which you saw, as well as the further rollout of our world-class manufacturing program. Finally, divestitures and minor acquisitions further strengthened our portfolio.

Whilst business conditions in this last four years weren't easy, 2013 was even more challenging, as the world continues to face a series of political, economic, social and environmental uncertainties. Some of these were foreseen but many were not, like the demonstrations in Brazil and Turkey, or the currency devaluations in some of the fastest growing emerging markets, or, increasingly, extreme weather conditions, as you've seen recently again in the Philippines or the US.

You've heard me talk many times about the increasing volatility and uncertainty of today's world and I don't propose to dwell on this today. The volatility I've just referred to puts further short-term pressure on all businesses, but confirms to us, once more, the relevance of the Unilever sustainable living plan and the need to drive towards an even more agile organization.

Competition continues to be intense in key markets, such as Nigeria, South Africa, India, Brazil, Indonesia, and especially the US. Turning to our markets, weakened economic conditions across emerging countries resulted in market growth there slowing down to around 5% to 6% by the end of the year. Despite that, our business in the emerging markets was up [again] 8.7% for the year, with broad-based share gains.

Make no mistake, growth here remains well above that in the developed world and will continue to do so. We are, therefore, further accelerating our investments in emerging markets and there is no change in our strategy.

In developed economies, however, there were more positive encouraging economic signals towards the end of the year, but so far, it has been sectors like cars and housing that have seen the benefit. It has not yet translated into any improvement in consumer demand in our categories, which, as you know, depends on employment, consumer confidence and progress in real income levels. Developed markets, therefore, remain flat at best.

All together, global markets are growing our categories at about 3% now, compared to 4% to 5% in the previous year or two.

Against this backdrop, we are delivering not only profitable, but also competitive and consistent growth. We remain focused on competitive top line growth, but not at the expense of margin expansion. There's always a bit of a trade-off. It means the right level of promotional activity to encourage sustainable volume growth and brand building. It also means continuing to take tough decisions to walk away from the less profitable SKUs or sales opportunities.

Unilever is now a far more resilient organization, able to withstand the impact of fast-moving events in an increasingly uncertain world. The strong foundation we've been building has helped us deliver against our objectives in 2013, even as market conditions became more difficult.

Let me just reflect for a few moments on some of the key highlights of the year. Underlying sales growth of 4.3% was ahead of the global growth of our markets. Volume growth of 2.5% for the year has held up particularly well.

Price growth has progressively reduced, as commodity cost pressure eased from the levels of 2011 and 2012. Now after the slower quarter 3, 4.1% USG in the fourth quarter, with volume growth of 2.7%, was a more competitive performance.

Our growth engines continue to deliver strongly; emerging markets up 8.7% in the year, and 8.4% in the fourth quarter. It's encouraging to see the continued good volume component, at 4.8% for the year, well ahead of the market.

In personal care, we continue to outperform the competitive set. Growth of 7.3% is broad based. All the subcategories are growing between 5% and 10%. The consistency of delivery demonstrates that our personal care business is fit to win. We already had a strong portfolio, and are increasingly seeing the benefits of a dedicated global personal care category.

Our brands and innovations continue to get stronger as well. As I mentioned with Signal personal care -- with Signal entering the EUR1 billion and personal care actually now has six EUR1 billion-plus brands.

Home care continues to show similar broad-based growth, with the unit up 8% in 2013. With this, household care is now a EUR2 billion business, despite having once been on notice. It is now a clear outperformer, creating value with strong growth and profitability in line with the Unilever average. Domestos, a brand that has been around for more than 60 years actually grew 14%.

In laundry, we continue to win share in the bulk of the key sales. I've often said that competitive intensity, which has never been so high as it is today, makes us simply better. Well, it does. The category is core to our overall strategy, and we will not blink in maintaining our strong positions. Despite some of the enormous pricing and promotional activity going on, we're actually growing margins, as promised. Again, a category fit to win.

Moving to foods; foods is a category that has played, for a long time, the role of funding growth in other part of the businesses, as we streamlined its portfolio and its cost, and shed some of the underperforming assets. We've been thankful for that, as without it we could not have outperformed in personal care and home care.

Underlying sales grew 0.3% in the year, with positive volume growth in the fourth quarter, despite the flat market. Hellmann's dressing and Knorr cooking products continue to grow, and are doing particularly well in the emerging markets.

But there is still a drag from non-core parts of the portfolio. We have been addressing this [impasse] with disposals in 2013, including Wish-Bone, Skippy and Unipro, which is our Turkish oil business; in fact, some EUR600 million of turnover in total. Where sensible, we will continue to do this.

By the end of the year, we got market shares growing again in margarine, with gains in 11 of our top 14 markets. And the relaunch of Flora is driving share gains of 70 basis points in the UK alone.

Our job is not just to win share within margarine. It is also to grow the margarine category as a whole, with products that offer more healthy but still great tasting alternatives to pure butter. To that end, we launched new with-butter variants in three European countries so far, and they've all got off to a very good start.

We are under no illusions that it will take time to get spread back to growth, but there are some encouraging early signs of progress. With the actions we've taken, we believe that foods is now ready to grow again. I will return to this when I talk about our plans for 2014 and beyond.

It was a year of contrasting performance in refreshments, which grew 1.1%. Tea posted solid growth with places like India and Indonesia particularly strong, and good underlying momentum. In ice cream, focus was on improving our return on [assets], for example by lowering the rate of cabinet expansion and discontinuing marginal businesses.

Our two biggest businesses, which are the US and Italy, both had difficult years, though for different reasons. In the US, sales and share are down, as we focus on restoring profitability. We have discontinued some of the lower margin SKUs and did not repeat some of the less profitable promotional activities around Thanksgiving that actually led to a particularly strong quarter 4 in 2012.

In Italy, our other major market, we felt the effects of weak consumer demand on a largely discretionary category. Spain and Greece were actually similarly affected. By contrast, we saw good growth in ice cream almost everywhere else. In Northern Europe, it was a good summer, and in the emerging markets, which are now more than 40% of our business.

Our ice cream brands and innovations are strong, but we can do more to get them motoring by investing in the core and, obviously, doing that more consistently. We will continue to focus on return on assets as we do this.

Finally, we had an unfortunate recall on AdeS soy drinks in Brazil. Whilst we fixed the problem very quickly, sales of the year were reduced by about EUR60 million to EUR70 million. We're rebuilding consumer demand for the brands with the soy force relaunch, and will be looking for a progressive improvement.

You may remember that Pier Luigi talked at our investor event about how we are using this incident as a call to action, to ensure that we have the highest manufacturing standards across the whole Unilever business. Now let me reassure you that, despite this unfortunate incident, the overall quality indicators are actually moving in the right direction.

Having had a look at the individual category performance, let me now turn to some of the pillars that have been driving the continuous competitive growth in 2013.

First, innovation continues to be the most important pillar. We continue to focus on fewer innovations that can be rolled out with more skill. In 2013 again, around 70 of our innovations went to 10 countries or more, and it has now become normal to see innovations going into 50 or more countries, like the Dove Repair Expertise range or the Tea Essence in Lipton Yellow, or the Axe Apollo ranges of deodorants, body washes and hair products, backed by a strong multimedia campaign, again, across more than 70 countries.

With EUR300 million additional investment in product quality over the last three years, most of our formulations are now also superior or equal to competition.

At the same time, we've continued to work on [prioritizing] our R&D activities, and aligning this to consumer needs. R&D now reports through to category presidents and we've started to reallocate more of our R&D resources from the downstream deploy part of the process into the upstream area of discover and design.

We're starting to see the benefits of this in our innovation pipeline which is robust and, more importantly, 75% margin accretive. But we know that there is still plenty to come.

In our industry, operating excellence is almost as important as innovation. The AdeS recall example shows how costly it can be when things go wrong. But the reverse is also true. If you do the basics brilliantly, day in, day out, it becomes a competitive advantage, be it in the supply chain or in in-store execution.

We continue to make big improvements here; a further reduction of more than 10% in consumer complaints, making a 35% reduction over five years. Another percentage point improvement in customer service, which is now up by 9 percentage points over 5 years and, at the same time, reducing both SKUs and working capital.

And the perfect store program, which we launched 3 years ago, has now reached nearly 7 million stores. The independent surveys like Kantar, Axentis and Gartner show that, in most places, we are either rapidly closing competitive gaps or opening up the new ones.

At the same time, we need to continue to invest to further bolster our organizational strength and capabilities. Those of you who joined us for the morning of our Investor Day in London last month saw the new personal care Pitch center.

As well as helping us to stay at the leading edge of consumer trends, it will also enable us to accelerate our innovation process by allowing us, for example, to rapidly translate concepts into products which can then be tested quickly in multiple markets. This is essential in such a highly competitive field.

You also met some of the highly talented individuals that Dave Lewis has recruited into the business from the beauty industry, further raising our capabilities in this area.

We intend to stay at the cutting edge of leadership development across the business as well. In 2013, we opened the new state-of-the-art training center in Singapore, and we are rolling out global programs we call Leadership 2020 to further deepen our management capabilities.

We see these changes reflected internally with employee engagement scores that are up again by 5 percentage points, and now well above the benchmark.

Externally, we are now the number one FMCG employer of choice in 23 of the 35 key markets we monitor around the world. Globally, we rank as the third most sought-after employer on LinkedIn only after Apple and Google.

We continue to make significant investments in IT as well. Under [Jean-Marc's] leadership we've moved from 200 local ERP systems to a global platform of just 4 SAP systems managed as one. We are increasingly starting to use this to make information available everywhere, for multiple sources in a timely manner, simple and consistent, well across the business. In a record time, we've put together a combined IT and enterprise service organization.

There are still far more benefits to come here, but having established core capabilities we can continue now to reduce cost and to focus on growth. All this is good but, of course, not good enough to ensure we stay ahead, so I will turn, in a moment, to the future actions we will be taking.

But first, let me pass over to Jean-Marc who will cover the financial performance in more detail.

Thank you very much, Paul. And, in the interests of time, I will focus today on the key aspects of our financial performance for the full year.

Let me start with turnover. The underlying sales growth of 4.3% for the year was offset by disposals of 1.1% and a negative currency effect of 5.9%. As a result of this, turnover was down 3% to EUR49.8 billion for 2013.

Exchange rates weakened throughout the year in a number of emerging markets, the largest impacts being Brazil, India, South Africa, Indonesia, Argentina and Turkey; all countries where we have large businesses.

In addition to this, the euro strengthened by 5% against the dollar. And, if rates were to stay as they are today throughout 2014, there would be a negative currency impact on turnover of around 5% for the year.

Let me say a few words on expectations for underlying sales growth in the first quarter of 2014. As Paul said earlier, market growth rates are currently running at around 3%.

You will remember, at Q3 last year, we flagged that emerging markets are likely to stay at their slower growth levels for a few quarters. And, while there are some positive macroeconomic signals in developed markets, this has not yet filtered through to our markets.

In these circumstances, our USG running rate is probably in the 3% to 5% range, and with the effect of the later Easter this year, which moves volumes just from Q1 to Q2, first quarter growth is likely to be at the lower end of that range. But for the whole year, as a whole, we continue to expect growth ahead of our markets.

Now let me turn to profitability. We set out with the clear objective that margin delivery in 2013 should reflect the virtuous circle of growth. That is, driven by gross margin, partly reinvested back in increased brand support, and that is what we have delivered.

All categories, all regions improved gross margin. About a third of the improvement came from maxing the mix. We set a target of having 75% of all our innovations to be above the Unilever average gross margin.

We have now achieved that and intend to keep at this level. And, by the way, it is the same at a category or individual brand level; 75% of innovations have margins above the average for that category or brand. That's the right balance to sustain competitive growth and up-trade our categories.

The remainder of the gross margin improvement is from the low-cost business model initiatives and ongoing savings programs.

Commodity costs have been more stable than in recent years but, nonetheless, increased by around 4% if you include currency effects. For 2014, we expect another year of low to mid single-digit commodity cost inflation, largely from the effects of the weaker currencies on the materials we buy in emerging markets.

Turning to core operating margin; up 40 basis points. The increase in gross margin was partly reinvested in advertising and promotional spend, which was up 50 basis points, or, as Paul said, EUR460 million at constant exchange rates, on top of similar types of increases year before in 2012.

And the quality of the additional investments is good. We have made further efficiencies in both media buying and non-working media. Digital is up by another 20% and it's now 17% of our total ad spend.

There have been some phenomenal successes like Dove Beauty Sketches, as you all know, which was named the viral campaign of the year, now seen more than 170 million times. That's a lot.

Overheads increased by 20 basis points. This was driven by the profit on the land sale that we talked about in India in Q2 of 2012. Were you to exclude that, overheads were flat, despite the investments that we have been making. Paul mentioned a number of these earlier, but just for your notes, total headcount was down by close to 2,000 last year.

We continue to manage our restructuring with discipline. In 2013, we absorbed a similar level of restructuring costs within overheads, as we did in 2012. And this was despite taking the first of the costs associated with the marketing Fit to Win program we spoke about at the investor event.

The quality of the margin improvement in 2013, the consistency of delivery through the year, and the maxing the mix and savings programs that are underway, all give me confidence of continued solid margin improvement in 2014.

Let me now turn to EPS. Core EPS grew by 10.6% at constant exchange rates. Our operational performance from growth [in] margin contributed just over 7%. The profit attributable to minority interests reduced by nearly EUR50 million, this driven by our increased shareholdings in India and Pakistan.

Tax contributed a favorable 2% to core EPS from some one-offs in 2013. Our longer term guidance on the tax rate remains approximately 26%, plus or minus 1%.

Currency movements reduced earnings by 7%, and this left core EPS up 3% at EUR1.58.

Free cash flow for the year was EUR3.9 billion. We achieved a further improvement in working capital, both for the year and, more importantly, on an average day basis. I have personally been particularly pleased with the operational improvements that have enabled us to bring down stock levels by about three days per year over the last couple of years.

With the initiatives we have for simplification, further improvements in forecasting and planning, we will be looking for continued progress in this area in the coming years.

Net CapEx was at EUR2.1 billion, or 4.1% of turnover, essentially unchanged versus last year. For 2014, we expect CapEx to continue in the range of 4% to 4.5%, which we have previously guided to. This run rate for CapEx is well above the historic average and it's particularly focused on our growth priorities, with the biggest increases in personal care and in emerging markets. We are spending it with discipline and we are focused on driving return on assets, and particular in ice cream.

Looking briefly now at the balance sheet; net debt at the end of the year was at around EUR8.5 billion, up by EUR1.1 billion following the acquisition of additional shares in India and, to a lesser extent, Pakistan.

The IAS 19 pension deficit reduced from EUR3.3 billion to just EUR2 billion within 12 months. This was the result of good investment returns and the cash contributions that we have been making to meet the funding requirements as agreed with the trustees in the different countries around the world.

The cash contributions in 2013 were just over EUR700 million and we expect essentially a similar level for this year, 2014. As a result of the reduced pensions deficit, the pensions financing cost is reducing, and in 2014 it'll be some EUR40 million lower, at around EUR90 million.

Finally, a few words on the way we define advertising and promotions. The way consumers engage these days with brands has changed. From 2014, as a result, we will move to a definition of advertising and promotions that is more aligned to the way we now manage these investments. We will be including some operating expenses like in-store merchandising, consumer care lines as part of A&P, rather than where they sit today, which is in supply chain costs or overheads where they are.

There will be no change to turnover, no change to underlying sales growth and no change to operating margin. There will be relatively small changes to A&P gross margin and overheads and, obviously, we will restate these measures for 2013 use and use them as a base for like-for-like comparisons in 2014. The IR team here at Unilever will be happy to take you through this in more detail.

Finally, before I pass you back to Paul for his closing remarks, I would like to just thank John Baker and all the team at PricewaterhouseCoopers for the excellent service that they have given to Unilever as our auditors for many decades. Thank you.

Now back to Paul.

Thank you, Jean-Marc. Let me finish by looking ahead. At our investor event last month, I set out the areas where we will be stepping up our performance. I won't repeat everything I said, but let me just remind you of some of the headlines.

As you have seen, we are delivering consistent, competitive and profitable top and bottom line growth, underpinned by the pillars we put in place; innovation, mix management, operational excellence and organizational capability. However, competition is not sitting still, nor is the economic environment getting easier, and we need to continue to set the bar higher.

First, we need to ensure we maintain agility and speed. In this increasingly volatile environment, there's a premium on moving fast. There is still too much complexity in the business that is not adding value and finally slowing us down. It also results in incremental cost that is better spent building our brands and innovation.

We're taking action on several fronts. With Project Half we're streamlining major processes, clarifying decision rights and reducing layers. For example, we are rationalizing our tail of smaller SKUs, targeting a reduction of 30%. Once we've done that, we will go after a further 10%.

There's also a lot of duplication efforts in managing our product formulations and the specifications of our ingredients and packaging in multiple systems. We're implementing a single system to manage all of this across the full lifecycle of our products, from initial design to the changes and improvements we make once in market. This will allow us to significantly increase productivity and reduce headcount.

We're also sharpening our marketing function. This is absolutely central to everything we do. With an approach tailored to the global local needs for each of the four categories, we can greatly simplify now the interactions between the categories and the countries. We are ready to start implementing this and we are well on track.

Then you have the new combined IT and enterprise support organization. This will increasingly help us to realize the benefits of scale across our shared services. We're starting to get increasing returns from the investments we've made in our IT platforms. By combining IT and enterprise support, we not only reduce the costs of these departments, but are also getting bigger savings in the areas that they support.

All these initiatives, and more, will contribute to the target of EUR500 million savings which I set out at the investor event last month. As a reminder, this target is in addition to ongoing supply chain savings programs such as material buying or the low-cost business models which will run in parallel. We have already started and we'll have all plans defined by the middle of the year.

Savings will be progressively realized throughout the year with full-year savings in 2015. We will absorb the associated cost in core operating margin as part of our ongoing business restructuring, as we told you we would do.

It will not only compromise our objectives of again -- we will not compromise our objectives of again delivering on our core operating margin progress in 2014.

More importantly, generating these savings is essential to fund investment and growth opportunities and let me tell you, we have enough of these now that our brand and innovations are obviously competitive again.

First, it's important that we continue to support the core. The cost of competing has certainly gone up and we will continue to fund the competitive battles. Defending our strong positions robustly is the sure route to long-term value creation.

Second, we will continue launching our new brands into countries where they are still not present. We can take confidence from examples like Brazil where the launches of TRESemme in hair care, Knorr baking bags and, more recently, Cif and Domestos in household care together added nearly EUR250 million of incremental turnover in the first year alone.

Last year, we entered again 35 of these whitespaces around the world. That's now over 235 over the course of the last 4 years. And we will also pursue geographic category opportunities; Africa, for example, a big opportunity, but one that has been a relatively low priority for us for decades.

As the region becomes more stable, we will increasingly invest in our people, our brands and supply chain. Or take rural India or Indonesia or the north or central west of Brazil where we already reach, but where there still is much more to do to unlock future growth.

Foods is another area ready for development. The actions we've taken so far have stabilized performance and we are ready to accelerate food beyond the 1.5% per year on average that we've done over the last five years. Food remains a highly cash-generative business and, as our portfolio increasingly focuses on our big global brands and a clear way forward for spreads, it is increasingly becoming ready to grow again.

Until now, we've been spending no more on advertising in food than we did in 2009 and, frankly, that was the right decision, but we're now in a better position. There are early encouraging signs that the new marketing strategy for spreads, for example, is the right one, and our portfolio is in better shape following the disposals we've made and, in some extent, we continue to make.

Finally, we can extend our categories into more premium spaces. This is particularly the case for personal care where we are working on some exciting opportunities, but there are also opportunities in other categories.

So we have a full agenda. The future changes we have already initiated will be driving through the business and we are acting, obviously, quickly to stay ahead in this volatile and uncertain environment. I think these are the characteristics that you've become used to of a sustainable growth company.

Finally, let me end with a few words on the outlook for the year. We expect 2014 to be relatively unchanged versus 2013. Jean-Marc has explained that we expect the first quarter to be relatively muted, but by taking the actions that we have set out, I'm confident that we will meet our objectives again in 2014. And they are, once more, volume growth ahead of our markets, steady and sustainable core operating margin improvements and strong cash flow.

With that, we are ready to take your questions.

Thank you, Paul, and thank you, Jean-Marc. (Operator Instructions). As ever, I'd like you to keep your questions to a maximum of two. A, Bs and Cs are not allowed, please, or we don't give everybody the opportunity to ask their questions. So thanks, and let's get started with Warren Ackerman.

Two questions. The first one is on refreshment, obviously, the underlying growth negative in Q4. So the question is, when would you expect that to be back into positive territory? I know you're reducing SKUs in ice cream and you've said 30% globally. Is that going to be a drag in other categories as well, going forward?

And then just secondly, on the US, Paul, you mentioned at the Q3 stage, it was a bit disappointing, especially US foods, which was down 3%. And you also talked about high levels of promotional activity in hair care and also in deos. Could you flesh out what you saw in Q4 in those categories and what's happened to your market shares in the US? Thank you.

Let me start with refreshments probably first. Just taking a step back, this category has grown accumulatively over 5% over the last five years. We continue to have strong growth in the emerging markets. And our Lipton brand, actually, which is obviously a core part of this category, has continued year after year now to improve its performance and, again, in 2013. So I think we're well on our way to building a good and profitable business.

In fact, over the last five years, the refreshment business has grown close to 20% and added, actually, market share over that category. The last six months of this year have been characterized by two things, and one of them, actually, refers to the US as well.

The first thing is the unfortunate AdeS recall, which you will see in the numbers over the second half mainly. After the first quarter, we will actually lap it and get better again but, unfortunately, we had a clean out on the lines. We made some mistakes by an operator there. Some cases were shipped that created a, not dangerous, but uncomfortable feeling in the mouth. We had to recall and our business has been down significantly.

The other factor is our ice cream business. As I've mentioned to you before, our ice cream business is now really focused on improving the return on capital. It actually is helping as well. You see that in these results that Jean-Marc just took us through, the return on capital employed was again up significantly for the Company and I want to keep it that way.

And the main culprit, if I may say, which the market hasn't functioned on as much as I would have liked to do, is actually ice cream. So we have rationalized the number of cabinets that we've put out there. We are rationalizing the number of unprofitable SKUs.

As it happens, a lot of that is actually in the US at this point in time. We have not been bidding on some of the things, like Dollar General would be a good example. We've taken unprofitable SKUs out of retail and [debt] restructuring, we could have avoided if we want to, and continue to show the things. But this is the new balanced Unilever that we want to show you. It also means that we're just taking the right decisions when they're right to be taken. That is what America is going through.

If I take a broader perspective on the US business, we don't really see the market growing. The good thing in the US is actually that our personal care business is growing share in 100% of our business over 2013. And 59% or nearly 60% of our North American business is gaining share. We see healthy growth in hair, where we have extended our market leadership. We see the same happening in other categories like hands and body or in personal cleansing. So we feel very good that that business is healthy.

On the food side, I've talked about refreshments, on the food side, we're obviously there as well, addressing our spreads business, which is dragging us down, and the rest of our food business is relatively minor.

I don't expect the US to show significant changes in the market in 2014, if I may be honest. Unfortunately, the growth that you see in the US, and where some people get excited and positive about, is not widespread enough to be of significant influence to our business.

Okay. Thank you.

Eileen Khoo.

Two questions, please. The first one is on the 3% to 5% run rate that you mentioned for the year. I'm just wondering if you can clarify if this is what you expect for Unilever's own run rate or were you talking about the underlying market's run rate? Because given that consensus is already at just under 5% for the full year, would you be saying then that you think market expectations are already at the high end of your own target?

And then second question is on the rollout of the Alberto Culver brands. Clearly, this benefited a lot from distribution gains. Is there still much more to do in terms of rolling out the brands into new markets? Or should we expect the distribution gains to start moderating from here? Thanks.

Thanks for the questions. If I may start with the last part with this, Alberto Culver, obviously, that acquisition has gone extremely well for us. I know that some of you were skeptical at the time we did the acquisition for EUR3.6 billion and felt that we overpaid. Let me reassure you that it already nearly has paid out [two] years after we made the acquisition. Tremendous success in Brazil, with the TRESemme launch, but also with launches like Simple in the US, which is continuing to growth share period after period; very well positioned in this market.

We've also expanded TRESemme to some other markets like India and Thailand and are seeing progress there as well. We think it has still a lot of legs to stand on to expand in many other countries. But we'll, obviously, keep you informed as we do that.

At the same time, I want to stress it has been a tremendous engine, amongst other things, for our global hair care business, where we continue to outgrow our competitors. You see the overall growth of personal care, 7.3% again, mainly driven in the emerging markets, mainly driven by our strong businesses. And hair care is such a big business that if that doesn't grow, our personal care business wouldn't put in these performances. Brands like Dove, brands like Clear, are clearly outperforming as well our competitors and we want to keep it that way. It's very healthy.

The growth rate that were perhaps historically 4% to 6% for the markets that we were operating in, with the markets coming down, we see in the short term a growth rate of 3% to 5% more realistic for our Company. We exited last year the market was about a 3% growth rate, to our knowledge. That has come down, actually, from the 4% or 5% the preceding years, partly driven by inflation and other things.

But unfortunately, with the slowdown that I keep talking about in these emerging markets, these growth rates have come down to 3%. So the cruising speed is anywhere between 3% to 5%, and I'll leave it up to you where you want to put consensus.

Okay. Thanks very much.

Marco Gulpers.

Two questions from my side; the first is, the CFO mentioned on Bloomberg that he would like to do more deals in 2014. It's always an interesting statement to make. Could you remind us again of what your criteria are for doing M&A?

The second is, could you elaborate a bit further on what kind of margin -- gross margin, sorry that is, improvement you're foreseeing for 2014 after a very successful 2013? Thank you.

Marco, thank you very much; I haven't seen the article on Bloomberg. But let me just reiterate, thank you very much for bringing it up, absolutely no change whatsoever in our acquisition strategy. It's all about bolt-on M&A between EUR1 billion to EUR2 billion.

But the real comment that I made this morning is the rigor that we apply to doing acquisitions. We, obviously, have confidence, given the success of Kalina; we talked about Alberto Culver. But we will remain rigorous and the acquisitions are complementary, add-on M&A, nothing more than that at this point in time.

In terms of gross margins, the good news with gross margins is that we really are instilling that discipline of maxing the mix. We launched that whole concept 1.5 years ago or so, so it's very embedded within our gross margins. And if you think about the virtual circle of growth, the quality of margin leverage, it really has to come from gross margins if you want to repeat this consistent, competitive, reliable, profitable growth each and every year.

So we don't give guidance specifically on gross margin, but it's a very important driver within our P&L and 2013 has given us confidence that we are now better at driving margin improvements than in the past.

Thank you.

Celine?

Two questions from me; the first one will be on pricing, please. If you could give us your view on your ability to price up in emerging markets at this current point in the cycle, where we see lower inflation in emerging markets?

And also pricing in developed market, how are the negotiations going right now with retailers? We've heard some negative commentary in retails in the UK and the US, so I wondering whether we could see further price decline in 2014.

My second question is on your savings. You mentioned the EUR500 million full impact in 2015, and as well contributing to on top of the other activity. So is it possible to have an idea of the cost of that in 2014? And as well, whether this EUR500 million is absolute incremental to the EBIT, or is like lower inflation cost, if you see what I am referring to?

Yes, Celine, thanks for the questions. I'll just quickly go over the pricing, and then Jean-Marc will talk a little bit more in detail the granularity of the EUR500 million [or not].

So on pricing, let me start with the tougher one, which is developed markets. You see again the results being announced over Christmas; by the way, the same in the US as in Europe.

There is a pressure on the retailers with consumers having less disposable income that is playing out in the markets and their results as well. On top of that, you have changes happening through ecommerce that put further pressure on the model.

With markets not growing, the competitive pressures, there is undoubtedly the trends will be down. We've seen that over 2013, and I don't see that changing over 2014, if I may be realistic.

So we have to count on the pricing front, through stable to down pricing. That doesn't mean you can't do innovations; that doesn't mean you can't reposition some of your products, all the things we're trying to do.

It's one of the reasons, by the way, why Europe over the last three years, again taking a little bit of a longer perspective. As you remember, we were talking four, five years ago, about stopping the continuous slide in Europe, where we had halved our business.

The reality is that over the last three years, under Jan Zijderveld's leadership, we have had a growth of 1%, decline of 1%, which is my point that our European business more or less is stable. It's not a drag on the system any more.

You've also seen in these results, that we're able to continue to improve growth, [poor] operating margin in Europe as well, so that we can finance all the other activities in the world that we're doing.

So Europe now is getting cost competitive as well, or getting ahead of the cost curve, which we also wanted to do, and we also talked about. We obviously need to continue to do that, as there is no growth in Europe, and the costs transferred from government and others onto us, continues to increase.

Limited pricing up, slightly pricing down, could be a realistic scenario for the developed markets. You take the developing markets, there obviously, because of the currency devaluations we've seen in other things, there is an upward pressure on commodities.

And I expect some pricing moving forward. In fact, in individual markets, we are taking it, but competitive pressure in these markets is the dominant factor on pricing. When we see some of the competitors now entering markets where they were absent, at prices significantly below us to gain a foothold, like we've seen in India for example, in detergents, or we saw in Brazil, then we have to defend. That obviously affects our pricing, and that is always priority.

So with that, let me just hand over to Jean-Marc to talk about the EUR500 million plan.

Thanks. Celine, good morning. On the savings, you're right, we plan to realize these EUR500 million savings, and they're coming from what we call project half. Paul discussed SKU reduction, process simplification, and the like, as well as from marketing Fit to Win.

We talked about the headcount reductions and the like, at our investor conference, and also the benefits really from our IT investments, bringing enterprise technology solutions together. This is in addition to our ongoing programs of low cost business models which Pier Luigi is driving, buying and the like, which have historically been at around EUR1 billion per annum.

So first point, it is in addition to our normal savings. The second point which Paul made in his speech this morning is the fact that all plans are being defined by the middle of this year, and there will be a progressive implementation of these projects throughout the year. And that's why we say the full-year savings will be delivered in 2015.

We'll obviously be looking for some in 2014, but remember we're also restructuring -- we're absorbing all these restructuring costs in common. That's the second part of your question. All this will be absorbed in restructuring costs in our ongoing business restructuring charges, within [com].

We have actually started already in late 2013, EUR30 million, EUR40 million, within restructuring, so we are not going to compromise in any way our delivery of steady core operating margin improvement, in 2014. We won't give you the number of what the restructuring charges for the year, until the year end, looking back, but please rest assured we continue to focus, more than ever before, in core operating margin improvements.

Now to your second part of the question, is it going to all basically fall down to the bottom line? We are funding this business for growth. We have spent the last five years investing in a lot of capabilities. We will continue to do so, perhaps in different parts of the business, at a different pace, but we need to continue each and every year to strengthen our brand, as the cost to compete goes up.

So obviously, we get more confident in our ability to drive core operating margin, but primarily, we want to continue to invest in the business for the long term.

And just a last point there, I think we are, with our strengthened innovation program, we are now in a very good position, and the new brand expansions that we're doing are increasingly showing success. That's a new thing for Unilever, only constructed over the last few years, but we have to continue to fuel that. We want to step up Africa; our food business we need to now reinvest in a little bit.

The cost of competitive battles we want to compete, and we want to compete successfully. So for all these reasons, we generate these funds to produce the model, so I cannot stress that enough. It's all about growth, profitable growth.

Thank you very much.

James Targett.

A couple of questions from me; firstly, on innovation and gross margins. Dave Lewis gave some great numbers at the capital markets day on personal care. I think for nine months' period, innovation's 330 basis points gross margin accretive. I just wondered if you could give some sort of figure, at the Group level, for the full year, what innovation did actually -- or launches did contribute.

And then secondly, just on Europe, you mentioned a slowdown in Northern Europe, and the signs of stability in Southern Europe. Could you give us some color of the difference in performance between the two regions? Thank you.

Yes, very briefly, on the innovations itself, the 110 basis points gross margin, it's a combination obviously of innovation on our business, and product and costs, and obviously managing the mix, as we've said. So we will continue to focus on that. We don't break that down, but the good thing now is we check very carefully our innovations and about 75% of our innovations are not margin accretive. And that is a trigger now for us, has become a trigger for expansion.

When we have to re-grow our business, and restart the engine, we obviously put less pressure on the gross margin as we had a lot of catch up to do, and in some cases, actually had a decline in gross margin; needed to regain our volumes. Now we are comfortable enough with the investments we've made in R&D, with the strengthening of our portfolio, to make them gross margin accretive.

Dave gave you an example but, to be fair, that is true for all of our businesses, not just for personal care. We won't go more into the details there, because we don't break it out so granularly.

The second question was more about Europe, the good things of Europe, and in Europe in fact, our personal care business is growing. In fact, if you take spreads out of the total business, our European business is growing. So it quickly boils down to spreads, which we are addressing, and I talked about that in my introductory remarks, so I don't dwell on that one.

But our personal care business is growing well. The Sarah Lee brands that we acquired turned out to be a blessing. They're doing extremely well; they're well positioned, and our innovations that we're rolling out are equally doing well. In Europe, we've rolled out Axe Apollo; we've now rolled out the Vaseline Spray & Go in the UK and the Netherlands, which we're very pleased about.

The compressed deodorants from Sure, Vaseline and Dove. Our oral care business, despite introductions of our competitors, you take our oral care in France, a good example, we defend, and defend aggressively now. We're actually building share.

Magnum is actually where we've launched the Five Kisses, and I could go on and on; I'm just rattling off here a little bit. We have a strong innovation program. Our food business is actually building share, but the markets are stable or down, and our spread business is the one that we need to focus on to turn around.

And then you can get a modest growth out of Europe, and don't get your expectations too high, but you get a modest growth out of Europe. You then manage your costs very effectively and then you ensure that Europe doesn't become a drag on the top or bottom line -- or on the bottom line, sorry about that, and doesn't pull us down.

And that's where we are right now, and I think Jan is getting close to that management of our European business in, dare I say, probably the most challenging part of the world to do business in now.

Thank you.

Harold Thompson.

I've just got two questions; the first one is on margins. Clearly, by regions and by divisions, full-year progress is very broad spread, but if I just look in the more near term I see that household and refreshments, clearly in the second half, were down. Is that more a reflection of investment decisions in the near term, or is there more other reasons behind that and how should we think of progress into next year?

Second question is about growth. Clearly, over 7% like-for-like growth in personal care is well above peers and market growth rates. How spread is that growth across the regions, and how do you take the decisions to invest, because clearly if you focus on just one market one might get the wrong conclusion of your own performance? Thank you.

So let me take the first one on household and refreshment. In terms of home care, the real drivers are the following; first point, gross margins essentially stable between the second half of last year and the first half of the year, the first half benefiting from a weak comparator. So good gross margins throughout the year. The main variant is an increase in A&P spend very much driven by a, the competitive markets, and b, us investing behind our brands.

You could say the same with refreshments. The only point that I would make is that the impact of the AdeS recall has driven the core operating margin within refreshments without which the core operating margin would essentially be flat.

Thank you very much.

Harold, on the share growth, if you look at the 7.3% on PC may I also add the 8% on home care. I'm handing over now my responsibilities to Nitin, and I wanted to give him a good momentum and set the bar high.

But it is fairly consistent. If you look at 15 sales on home care we would be growing our share in about 12, which we think is very good right now. And the same on personal care; in fact, all of our personal care businesses are growing above 5%, so it's not a coincidence.

I'm trying to think, when you asked the question, where are the regions that we are under share pressure, it's not really that many, because what we now have is good global initiatives that we can roll out now very quickly to all countries. And, if you roll it out to 70 countries, broadly you do okay, if the initiative is meaningful enough, in about 50 to 60 of those, to lift the total business to where it is.

Our Chinese business, for example, just passed the EUR2 billion barrier, a major milestone, with all of our businesses building share and closing in to our competitors. In fact, in some of the categories in personal care we are already market leaders; hand and body wash would be a good example of that. So we see the same in Brazil; we see the same in India.

Now there are some challenges. I think we would like to have our skin business grow more, our face business especially within that, so there are some challenges. We have one or two hotspots where we've seen incredibly stepped up competitive activity around deo that we're obviously responding to; more pricing driven, by the way, than product driven. But overall this is a category, like home care, that is in good shape and what we would call fit to win.

I do agree with you that our growth rates have been exceptional, probably not fully unlocked in the value of Unilever, and we will continue to try to keep it at these levels, but I would expect a little bit of tapering as we move forward, obviously. And that's for the same reason why expect food and refreshments to pick up, as I keep saying.

Thank you very much.

Iain Simpson.

Two questions from me, if I may? Firstly, I believe at the full-year results last year you described 30 basis points that you did in 2012 of margin expansion as a good benchmark, going forwards. You've clearly delivered another 30 basis points this year. I wonder if you'd also regard that metric as a good benchmark, going forwards, given that it seems like momentous acceleration on the cost cutting.

And then just secondly a housekeeping question. You've kindly given us some guidance on the FX impact on sales for 2014. I wondered if you could help us out as to what the FX and tax impacts on EPS, core EPS, look like they might be in 2014. Thank you very much.

Iain, very quickly on the first part; we think the combination of consistent market outperforming top line growth that we are doing, and then the 30, 40 basis points margin expansion on a consistent basis, will be very good for investors who want to stick with us for the long term.

We will never be their most sexy company in a specific year. I'm sure there will be some others. We have a competitor now, after four or five years no performance, all of a sudden they have performance and increase. We don't want to run the business that way. We want to run the business on a consistent top and bottom line performance.

And I think we're getting into this virtuous circle now. We've always talked about it taking three or four years to get there. Don't forget, four or five years ago, we still had an enormous negative mix and a drag on the business with our emerging market growth, with our portfolio.

We're now coming into a situation where we can actually manage that a little bit more positively, and I would expect us to continue to deliver, on average, not necessarily every year because you don't know how the calendar falls versus your business activity, we will always, and let me stress that again, always do the right thing to protect our business for the long term, but that is surely our objective to get that as an average.

For the exchange rates, I'll hand over to Jean-Marc.

So, again, for 2013 the top line was just shy of 6%; the bottom line was around 7.5%. What we say this morning is that, where foreign exchange is today, the impact on the top line in 2014 would be around negative 5%, and we probably think that it'll have the same type of impact on the earnings per share line.

Just one point in addition to your point about the 30 bps, you said 30, but it's actually 40 bps for 2013, and the confidence really is driven by the fact that it's gross margin improvements.

That very clear, gentlemen. Thank you very much. And just the tax question.

Sorry, can you just repeat the question then?

Yes, of course. Core tax rate changes was a 2.2% tailwind to EPS in 2013. I wondered if we should expect more of a reversion to the mean for your core tax rate in 2014, or how you were thinking about that, given that you call out tax efficiency as one of the things that you were pleased with this year. Thank you.

Yes, our guidance is 26% for next year -- or, sorry, for 2014, plus or minus 1%.

That's very clear and very helpful. Thank you very much.

We'll try and squeeze another couple in, if you don't mind, guys? Alex Smith.

I was wondering if you could expand a bit more on what you're seeing in terms of the competitive environment in emerging markets, specifically kind of real time. My impression was, in Q3, the competitive environment hadn't really changed materially on the second quarter or H1. Perhaps Brazil hair care might have got a bit tougher, but just wondering if you're noticing any pockets of change in the competitive environment in emerging markets.

And then can I just clarify from an earlier question; is in-quarter pricing in emerging markets still stable or have you started looking [to take] pricing there already? Thanks.

Thanks, Alex. On the competitive landscape I will focus mainly on HPC, if you don't mind. I think we're in a relatively good shape, bar a few hotspots on refreshments, and we're in relatively good shape on foods where we were basically competing against ourselves in many of these [places], and where the markets, by the way, in the emerging markets are growing quite nicely for us.

On home care, to start with home care, we do see competitive activity continues to be at very high levels in laundry in our solution wash business, as we call it, and that is not changing. I would actually say that that pressure is at least as high, if not higher, over the second half than before, and is at least as high as I've seen it in the last 20 years in the business. We will do what we have to do and the results speak accordingly. It actually makes us better; I keep saying that.

On personal care, we have competitive activity in pockets. In hair care we see continuous drifting down of pricing and promotional activity by one of our main US-based competitors, but that doesn't translate in share growth, whilst we are able, with limited response, to continue to build our portfolio and, as a result, build our shares.

We see some activity in hotspots around deos now, probably an attractive category for others as well, and we have to defend our market shares there. The good thing is, with some of that activity coming in, we see the deo market continuing to grow as well at a more accelerated pace. But there are some incremental hotspots that have arrived from that.

And on oral care, we have one of our key competitors expanding globally one of their brands, and we, as well as other competitors, are aggressively defending and with a certain level of success. You saw Signal again passing the EUR1 billion level. I can only share with you, although we don't break it down, that our oral care business not only has healthy gross margins, but has also healthy growth rates and we want to keep it that way.

So here, again, an expansion of a competitor or a heightened competitive environment in an emerging market makes a company like Unilever better. And we frankly should welcome that; I won't use that as excuses. We welcome these things, and it's also better for the consumer and that is playing out exactly the way as I anticipated it.

And the question on in-quarter pricing in emerging markets?

Yes, I'm just referring to Jean-Marc here for a second.

Sure, well, obviously given the devaluations, inflation is coming through so there are certain pricing opportunities. At this point in time, however, we're very careful, just given the state of the consumer discretionary spend, while we do expect some pricing in emerging markets, we're careful.

Got it. Thank you.

Can we take a last question here from David Hayes?

So two from me. Just very broadly speaking, obviously there's a lot of moving parts between the third quarter and the fourth quarter performance which you've talked about, but broadly speaking, what is it that you think Unilever did in the fourth quarter that it failed to do in the third quarter, in terms of that step up? And maybe the environmental change, was there anything that you'd point to that changed between those two periods of time?

And then secondly, just picking up on the bolt-on M&A outlook, just on a strategic perspective, we've heard Dave Lewis, I guess, the last couple of years talk about the gap in prestige personal care, is that something that you still look to [solve for], is that something that you need to solve for to drive personal care on, or can you survive without filling that gap.

And I guess more broadly again, what other areas, when you look across the portfolio, would you say, from a strategic perspective, you'd be focusing that bolt-on search on? Thank you.

I will very quickly answer the two questions. Frankly, if I may say, without being too direct, we don't get too emotional about these movements on a 90-day basis. So it's not that we are stepping up or stepping down, we have a very solid strategy and sometimes some things happen in a 90-day period versus another 90-day period. We don't get too excited about that. We had the Brazil situation; we had some adjustments in the US; we had the Cordillera, and that gave us the quarter 3. Sometimes you have a few more days or a few less days. Let me remind you, by the way, that the first quarter next year has two less days for Easter.

So these things happen between quarters and if we start running our business and our strategies on a quarterly basis we might as well pack our bags. But that we don't do and we don't get too excited about that. Our strategies are fine and we continue to focus on what we have explained to you.

On the M&A activities, to be honest, the gaps are well known; I've always talked about that. We would love to move our portfolio up. Part of the thing you are now seeing with our gross margin expansion is that we actually are getting into more margin enhancing, hence more premium innovations that drive our business. Personal care, amongst others, is obviously a key engine of that and Dave spent some time with all of you to take you through some of the innovation programs, and we will continue that.

I think the bulk of that will come from our internal efforts. As I've always said, 90% of our growth that we need to deliver over a 10-year time period comes from us doing our own jobs well and that also is a very good shareholder value creator. And then we will continue to look, as Jean-Marc said as well, on some of the bolt-on acquisitions in our strategic businesses which are [not] very clear.

So I hope with that that you found this conference call this morning very useful. Sorry to not do it in person, but we got a lot of feedback from many of you that you just saw us a few weeks ago, and I don't know if that meant that you were sick and tired of us or that you just expected these good results, but I appreciate that we could just do it via this webcast.

Let me reiterate again that, in 2013, we delivered another year of consistent and balanced and competitive top and bottom line growth. We'll work hard to ensure that we do the same thing in 2014. We will continue to make Unilever a more agile organization, generate the savings that we need to maintain the growth rates; market now at 3% to 5%, so that should be our target range as we've talked about. And it gives me confidence, again, in my opinion, that 2014 will be another year where we grow the top line ahead of the market for continuous core operating market expansion.

And then the discipline once more, I want to stress that on our total capital management that you have now become accustomed to, on a constant currency basis actually gave us slightly north of 10% EPS growth as well. You saw, again, some of the things coming out of working capital, the three days of inventory that Jean-Marc talked about. This is a high priority for us; don't underestimate that. You see that playing out on our ice cream business as well.

So all in all, we finish a good year. I want to thank all the people who have worked extremely hard to make this year happen, especially the Unilever people, but also our partners. And I want to thank all of you in the investor community for the support you've given for 2013 and I certainly look forward to our continuous interactions in the year to come.

Thank you all very much.

Ladies and gentlemen, this conference has been recorded. Details of the replay number and access codes can be found on Unilever's website. An audio webcast will also be available on Unilever's website www.unilever.com and on the investor relation's app.