Unilever Q4 2009 Earnings Call Transcript

123jump.com Staff
10 Feb, 2010
New York City

Sales fell 5% to

Unilever PLC ((UL))
Q4 2009 Earnings Call Transcript
February 4, 2010 3:30 a.m. ET

Executives

Paul Polman – Chief Executive Officer
James Allison - Head of Investor Relations
Douglas Baillie - President, Western Europe
Manvinder Singh Banga - President Food, Home & Personal Care
Pier Luigi Sigismondi - Chief Supply Chain Officer

Analysts

Jeremy Fialko – Redburn Partners
Christopher Wickham – MainFirst
Nico Lambrechts – Bank of America/Merrill Lynch
Sara Welford – Citigroup
Marco Gulpers – ING Financial Markets
Julian Hardwick – RBS Securities
Charles Pick – FinnCap
Olivier Croquet - Cheuvreux
Warren Ackerman – Evolution Securities
Simon Marshall-Lockyer – Jefferies
Pierre Tegner - Oddo Securities

Presentation

Paul Polman

Good morning everybody and obviously welcome here. Good to see so many familiar faces. I hope the year has started well for you. Obviously, we are here to share with you the full year results and the fourth quarter results. And I really do appreciate you taking the time out and obviously showing your interest in Unilever and for being here in your busy schedules that you have.

Let me, I was just talking to him, so let me pay a particular welcome to Charlie Mills. Where''s Charlie actually? I saw Charlie but I don''t know. Here is Charlie my friend, who actually today marks his 25th year of covering Unilever and he is still smiling. That''s 100 -- it also gives away his age, I guess. That''s 100 quarterly results calls. So that''s quite an achievement, Charlie. And obviously, congratulations to you and many others who have covered us for so long.

I''m joined today by James Allison, the Head of Investor Relations. And in the audience I''m delighted to introduce to you Jean-Marc Huet, if you can stand up Jean-Marc for a second, our new Chief Financial Officer. And I certainly look forward to sharing the platform with Jean-Marc over the course of the coming years. Jean-Marc is a great addition to the executive team and we''ll obviously welcome -- happy to have him here.

Besides we have other members of the UEX here, Vindi who is sitting next to Jean-Marc, Manvinder Singh Banga, our President of the categories is here. Doug Baillie, I see him sitting there, our President of Western Europe. Genevieve Berger, our Head Chief R&D Officer. Sandy Ogg, our Chief HR Officer. And Pier Luigi Sigismondi sitting here in the front row, our Chief Supply Chain Officer and then I saw Steve Williams here as well, our General Counsel.

Not joining us today are Mike Polk, who is the President of the Americas and Harish Manwani, President of Asia, Africa and Central and Eastern Europe. They''re in their respective markets, driving their business. And I thought it was a good thing that they continued to do that.

So let me say a few words about the highlights of the year before handing over to James who will actually cover our business performance in more depth. After James takes you through the details I actually will review what is driving our performance, what we will do more of and what we will need to do better. I am convinced that the environment is going to stay competitive and it''s by no means clear that life will get any easier for our consumers and our customers in the coming year.

I believe we are ready and prepared for this, for this environment that will continue to be tough but obviously time will tell. I will conclude my comments by sharing our priorities for 2010 and then opening up the floor for questions. So let''s get going.

Let me start by drawing your attention to the usual disclaimer, which is related to the forward-looking statements and the non-GAAP measures. As we have discussed in prior quarterly reviews at the beginning of 2009, there were a number of areas where Unilever was insufficiently competitive. There is a few exceptions volume market shares had been declining for too many quarters. Brand equities were weakening in too many markets. Many of our products lacked the superior performance that we were looking for and many of our innovations were under supported and deployed in a fragmented way.

Service levels were unsatisfactory in too many places. At the same time, markets were soft and uncertain in the context of the global recession. To build long-term shareholder value we felt that the priorities for Unilever in 2009 should be to restore volume growth whilst protecting cash flow and operating margin. We set out to do this whilst addressing the underlying weaknesses of the business.

I am pleased with the progress we''ve made, recognizing and I''ll be the first one to do that, that''s still more needs to be done. Volume growth of 2.3% for the year as whole is a significant recovery from the 2% decline we actually started with in the first quarter. Volume market share has improved as the year as progressed and was strongly positive in the fourth quarter. More importantly, the growth was widespread.

At the beginning of 2009, we were actually growing share in roughly a third of our turnover. By quarter four, we were growing share in nearly two thirds of our turnover. This is clear and measurable progress. Actually 10 out of our 13 brands are gaining share and the others are maintaining share. Value share has equally improved, trending in the same direction as volume share suggesting that we have retained -- that we have retained our relative price position and competitiveness.

Underlying operating margins, although we had started the year by going for flat, are actually up 20 basis points. We''ve done this whilst, at the same time, increasing the support levels behind our brands by a whopping 80 basis points for the year as a whole. As well as I do that building brand equity is a cornerstone of the long-term success of consumer goods companies. And this is very important to me and the way I certainly think about running the business.

I''m also delighted with our cash and cost discipline during the year. Again, we started the year by saying protecting our cash flow, but we ended the year with cash from operating activities up by 1.4 billion euros. Despite an incremental contribution to pension funds of 0.5 billion euros, more than exceeding the stretching internal targets we had set ourselves and reflecting the good discipline across the organization.

This has been driven by a strong focus on working capital. And you''ve seen the results of this progressively coming through the year. We''re also seeing the benefits from the accelerated restructuring and the fast reduction of all discretionary costs that do not add value to the consumer or the customer.

In fact, overall cost savings were 1.4 billion euros for the year. Again, this is ahead of the stretching internal targets we had set for ourselves. So frankly, I am pleased with the quality of the results and the progress we''ve made in a relatively short period of time. We have definitely raised the bar on performance. We must now do this consistently as we move forward.

Before I give you my perspective, let me just pass over now to James who will cover our performance in a little bit more detail. James, go ahead.

James Allison

So thanks, Paul. Good morning everyone. I intend to focus on the key aspects of the results rather than repeating a lot of what is already in the announcement text. In the attachments to this presentation you will find some additional details, which we will not cover specifically in the presentation.

Underlying sales growth for the year was 3.5% with 2.3% from volume and plus 1.2% from price. Turnover was 39.8 billion, that''s 1.7% down on 2008, reflecting negative currency of minus 2.7% and disposals net of acquisitions of minus 2.4%. Underlying sales growth in quarter four was 1.8% with volume up 5% and underlying price growth of minus 3.1%.

During the year we saw volume momentum building. At the same time, the lapping of prior year price increases and yearly price corrections to reflect lower commodity costs reduced the component of price growth as the year progressed.

Turnover in the fourth quarter was 9.7 billion, that''s down by 4.8% impacted by negative currency movement of 5.7% and disposals net of acquisitions of minus 0.8%. The size of the negative currency exposure in the final quarter reflects the strength of the euro against most currencies, but particularly against the U.S. dollar, pound sterling and Indian rupee.

The devaluation of the Venezuelan bolivar on its own accounted for 60 basis points of the negative currency movement in the quarter. Let''s look at volume in a bit more detail. This chart tells its own story with momentum building each quarter and ending the year at plus 5%, albeit against the weak prior year comparator. This compares with estimated market growth of about 3% in the same period. Within this it''s worth looking beneath the surface of the quarter four performance of Western Europe.

Here, volume growth was lower on a reported basis by 0.7%. But you''ll remember that there were two fewer trading days in quarter four 2009. On a like-for-like basis the volume growth in Western Europe was between 1 and 2% positive. That''s faster than the market and is reflected in improved volume and value share performance. So here too a strong sense of momentum albeit in market conditions that continue to be challenging.

Volume growth in D&E markets has improved sequentially, finishing the year very strongly with volume up by 9.5% in the fourth quarter, helped by the timing of Ramadan prior year trade destocking in Russia and some easy comps in a few of our markets. For the year as a whole we are encouraged by volume growth of over 4%, close to the average of the last 20 years of 5% and so soon after the recession with share growth in most markets.

This reflects not only the robustness of the D&E markets, but also the strength of Unilever''s competitive positions across so many geographies. We stepped up innovation in 2009 with bigger initiatives rolled out to more markets, more quickly and better supported. This chart shows a number of products, which we introduced during the course of the year.

Examples of more recent launches include Dove Nutrium, launched in the U.S. in quarter 3, Dove for Men, launched in six countries in Western Europe in quarter 4 and Sunsilk Co-Creations, launched in Brazil, Argentina, Turkey and India also in quarter four. All have started well. For example, Dove for Men + Care is already the number two male shower brand in Belgium.

Advertising and promotional expenditure increased substantially in the second half of the year as we supported innovation strongly and continued to build brand equity. Media impressions for the year as whole were up by over 15%, partly through incremental expenditure and partly through lower media rates. We substantially increase our expenditure on digital support, leading the expansion into this media across a number of our brands.

Let me now say a few words about pricing and costs. This chart shows the development of commodity costs set against the trend in underlying price growth. From this it is clear that prices have been increased and subsequently reduced in line with the movement in commodity costs.

Pricing in quarter four was minus 3.1% at the bottom end of our guidance, because of actions taken in specific categories and markets to protect our competitive positions. So for example, in some areas we did not take price increases that we had planned and in others we took actions to ensure that our consumer propositions remained competitive.

This should be seen in the context of the very substantial price increases taken in 2008, ahead of our competitive set in the face of unprecedented commodity cost increases. In fact, price levels in the fourth quarter of 2009 are still around 5% higher than in the same period two years ago. We now feel that pricing levels are appropriate given our strategy. But this remains subject to any competitor pricing moves.

We expect to see commodity cost tailwinds, albeit at a lower level in the first quarter of 2010 as we work our way through forward covers and inventories. For the year as a whole and based on today''s exchange rates, we expect to see commodity costs 2 to 3% higher than in 2009 and this will put upward pressure on prices during the course of 2010. We expect to see underlying price growth turning positive around the middle of 2010.

As Paul mentioned, cost savings in the year were 1.4 billion, a real step up. This comprised around 700 million from buying savings, 500 million from restructuring and 200 million from local efficiency programs. We expect savings in 2010 of at least 1billion euros. Let me say a few words about the status of the restructuring program, which we initiated in 2007 and which you will remember we called One Unilever.

We anticipated restructuring spending of roughly 1 billion euro a year, from 2007 through 2009, that''s 3 billion in total. In fact, we''ve charged 2.6 billion to the income statement over this period, despite increasing the scope of manufacturing rationalization.
And we targeted restructuring savings of 1.5 billion in 2010 versus the 2006 base. As at the end of 2009, we have delivered cumulative restructuring savings of 1.2 billion euros, with at least a further 300 million to come during 2010.

This chart also shows the progress we are making in manufacturing restructuring. You can see that by the end of 2010, we will have closed or streamlined 88 sites higher than the 50 to 60 previous planned. The bulk of the costs associated with the 2010 closures and streamlining have already been charged to the income statement. Restructuring charges will now reduce to nearer to our longer term guidance of 50 to 100 basis points from the 250 basis points of recent years.

This for normal ongoing productivity improvement. The planned completion of the Sara Lee personal products acquisition in 2010 will lead to further restructuring costs. And this will come over and above the 50 to 100 basis points. And we''ll provide further guidance on this after completion.

For the year as a whole, gross margin was up by 100 basis points, regaining much of the ground lost in 2008. The increase in the second half of the year reflects the benefits of our strongly improved volume performance, lower commodity costs and savings programs offset by lower pricing. Gross margins were strongly ahead in all regions in quarter four.

Operating margin before RDIs was up by 20 basis in the year with gross margins strongly ahead. Overheads were flat, despite dilution from disposals. And A&P was up by 80 basis points with advertising spend in particular strongly ahead. Let''s have a look at earnings per share and I''ll start with quarter four. Basic earnings per share before RDIs were 0.27 euro, down 6% versus the same period in 2008. This is despite a strong contribution from operational performance, which added plus 10%.

The negative currency impact, which I described earlier in relation to turnover, reduced EPS by 6% in the quarter. Finance and pension costs reduced EPS by 7%. Minorities impacted EPS by a further 3%, reflecting cumulative adjustments to prior year minority interest booked in the fourth quarter of last year. So as you can see, non-operational factors reduced EPS growth substantially in the quarter.

For the full year, earnings per share were 1.21euro down 33% versus 2008, which benefited from substantial disposal profits. Earnings per share before RDIs were down 7%, with EPS from operating performance up 4%. This was, however, more than offset by negative impacts from currency of minus 2% and finance and pension costs of minus 6%. In the year, disposal dilution impacted EPS by 2% and minorities a further 1%. Based on exchange rates as at the end of quarter four, we expect currency impacts to be broadly neutral in 2010 with pension financing cost contributing positively to EPS growth in 2010.

The pension deficit reduced from 3.3 billion at the end of quarter three to around 2.6 billion at the end of quarter four. With corporate AA discount rates broadly stable, this reduction reflects strong investment returns and the additional company contributions paid in the quarter. With long dated government bond dates rising, local pension deficits for funded plans will also have improved.

Cash expenditure on pensions in 2009 was 1.3 billion that''s up 500 million on 2008. We expect payments in 2010 to be closer to 750 million euros. We expect the pension financing charge to be close to zero in 2010 after a debit of 164 million in 2009.

At the same time, we expect additional charges in operating profit of approximately 30 million as we return to normal levels after some one-off benefits in 2009. Net debt ended the year at 6.4 billion down from 8 billion at the start of 2009. This reflects the strong cash generation in the year. Cash proceeds from the disposal of most of our minority interest in JohnsonDiversey contributed 300 million euros in quarter four.

Interest on borrowings was up slightly at 4.9% from 4.5% in 2008, reflecting a longer maturity profile on our debt. The tax rate before RDIs in 2009 was 26.6%. In 2010, we expect the tax rate before RDIs to be close to our long-term guidance of around 26%. As previously discussed and agreed with shareholders, we will now pay dividends quarterly.

We have announced today that the first quarterly dividend will be 19.5 eurocents, that''s one quarter of the total cash payment made in 2009. This will be paid in March and the next quarterly dividend will be announced with our quarter one results on 29, April.

With that, let me return you to Paul.

Paul Polman

Thanks, James. Okay, so you''ve heard the good set of results from James. So let me spend a little bit of time to reflect on what we''ve been doing. What''s making the difference and frankly what''s left to be done. I see 2009 as the first step towards a consistent long-term top line, bottom line growth. We recognize the severity of the economic crisis and actually we recognized it earlier than some of our competitive set and actually took the steps to protect both the financial and the business fundamentals.

For example, we refocused the organization on volume growth, operating margin and cash flow. We simplified the remuneration scheme. I think this helped us drive alignment and a sense of urgency. We removed cost wherever we could and we accelerated restructuring where possible. We reduced our head office headcount by approximately 1,000 mangers. We froze salaries, we cut travel budgets and all other elements of discretionary expenditure.

We simplified our portfolios, our SKU lineup and rationalized packaging and material and ingredients to drive more efficient buying. And we simplified or eliminated many of the internal non-value added processes. We started to leverage scale more effectively than before, with all of our main supply contracts for example, being renegotiated including those related to media buying and planning.

Now we used these savings to invest more strongly than ever before in our brands and in our products. In so doing we have been laying the foundations for sustainable profitable growth. We also launched towards the end of the year a new and exciting vision for the company, built on sustainable growth and leveraging increasingly our unique competitive advantages, an energizing vision to double the size of the business whilst actually reducing the environmental footprint.

Before I go into a bit more depth on our strategic priorities, let me just say a few words about the economic environment. You''ve heard me say this before, but we expect the economic environment for our business in 2010 to continue to be tough. With the reduction in stimulus packages by governments and an increase in taxes, consumer spending will continue to be under pressure. Unemployment will continue to stay high and consumer confidence is likely to remain low. And those are the key drivers of our business.

We expect continued deflationary pressure in many markets as customers compete on value. Competitors are equally increasing their activities in many of the markets, trying to frankly to regain share on the back of more brand support, hopefully and innovations.

So, as I said earlier, we do not underestimate and we should not underestimate the size of the challenges we face. But we believe that we have been building the competitive strengths necessary to continue on the journey we started in 2009. D&E markets, which account for about half of Unilever''s turnover, have actually been more robust than many have feared. As you have already seen our volume growth here has quickly and very quickly returned to pre-recession levels.

In fact volume growth in the last quarter was over 9%. We''ve spoken before about what makes the opportunities in the D&E markets so exciting. The demographic trend an extra 1 billion consumers will be able to afford to buy our products in the next 10 years, that''s exciting. Levels of per capita consumption are actually much lower than the developed market and offer enormous scope for more consumption.

Categories, the categories where we have the global strength have actually still low usage. Just to give you a few examples. The use of branded deodorant products is not yet a part in many of these places of the daily grooming routines. And our ranges of household cleaning products will be perfectly complementary to the needs of millions of consumers that enter new home ownership.

The hair conditioning and fabric conditioning markets are not yet well established in many of the D&E markets, et cetera, et cetera. And sometimes it''s easy to forget the size and the scale of the existing D&E business that we can leverage. In fact, it''s well ahead of our competitive set. If we take the home care and personal care categories for example, we reach 96% of the 1.9 billion consumers in Asia and South Africa.

That''s 33% more than the next biggest competitor. Per capita consumption of Unilever products is also nearly double that of our next biggest competitor. So we are well placed in these markets. And it''s good to see that our businesses are performing well in the areas even in the areas where we are being attacked by our competitors with increased competitive activity.

Just take Indonesia for example, where I recently visited. We''ve seen an increased activity from both international and local competitors. Despite that, our value market shares are up by 270 basis points in the last 12 weeks alone. A market like Turkey, with increased competitive activity saw equally strong performance.

Now, let me just briefly say a few words about the four strategic thrusts that underpin our business performance. Now just to remind you, these are winning with brands and innovation, winning through continuous improvement, winning in the marketplace and finally winning with people. Let''s just take them each in turn. First and most importantly let me address winning with brands and innovations.

Now that''s now new to us. In fact, the most recent Best of the Decade Award, which was published by AdAge in the U.S., recognizes two of the Unilever brands. AXE was named the third best new product of the decade. In fact, it came just behind iPod and the Wi-Fi and well ahead of other competitors, not bad.

And if that is not enough the Dove Evolution campaign was recognized in the top 10 Non TV Ads of the decade. That''s outstanding recognition of the great work that is being done on two of Unilever''s leading brands.

Now during 2009 we have significantly stepped up the quantity and effectiveness of our brands and our brand support. Our share of voice as a result of that has been improving. And at the same time, we''ve been improving the quality of our communication as well as the quality of our products. So it''s not just about more advertising, but better advertising behind better quality products.

Now, we will continue to improve our products when we move forward. In fact, on product quality of 2010 alone we plan to invest over an additional 100 million euros to improve our product quality. Here are some examples of the advertising behind some of our recent launches and product improvements. Just have a look.

Advertisement

That''s about as far as we go. Now then plenty of Klondike bars for you to try afterwards for the people that are here. This brand actually had underlying sales growth in the U.S. or in North America of over 15% in 2009. So my recommendation to you really is get those bars as long as they last.

Now, we''ve been working hard to improve the quality of our innovation funnel as well, as you can see from the chart here. We expect to significantly increase the incremental turnover from key innovations in 2010. The incremental turnover expected from projects launched in the next three to five years has also doubled. And you''ve seen that we are focused on fewer bigger innovations, which we are rolling out to more markets, more quickly.

Dove For Men + Care was launched simultaneously in six markets in quarter four of ''09 and will be in 50 markets by the end of 2010. AXE variants routinely travels to over 50 markets inside a space of 12 months. This chart shows other examples of the quickening speed of our rollout. It''s now truly becoming embedded and a good habit and a proven way to build sizeable incremental turnover.

But we also recognize that not everything needs to be everywhere. AXE hair for example, has generated over 50 million euros incremental turnover in North America alone, 12 months since launch. And this despite the simultaneous launch of a key competitive brand that is disappearing now from the shelves. These are high quality innovations from a pipeline which is increasingly becoming healthier. With a stronger R&D organization in place, open innovation accelerated and genesis projects underway our flow of innovation is strengthening each year a bit more. I believe certainly that now our innovations are at par with the best of the rest.

Now, not all great brands are leveraged as much as they should be and there are still many opportunities to introduce our brands in more markets that we''re not yet in. Growing those markets and taking share from our competitors. Examples of this include the launch of our ice cream brands in Vietnam, Cif in India, Ben and Jerry''s in Norway and now Australia, Sunlight in Nigeria, Ponds in the Middle East getting to market leadership in year one and the list goes on.

M&A activity is equally helping us to take our brands further as well and to fill our wide space and category positions. The acquisition of the Napoca brand in Romania gave us a foothold in ice cream from which we were able to launch a broader ice cream portfolio.

The addition of Baltimor ketchup in Russia allows us to fill out our dressing portfolio there. And last but not least, the acquisition of the personal care products brands of Sara Lee, brands like Sanex, Radox, Neutral and Duschdas will allow us to meet the consumer needs across a wide range of price points in the skin cleansing and deodorants market.

The second key thrust I briefly want to touch on is winning in the marketplace. How well are we serving our customers and consumers? And this runs from the basic requirements of delivering our products on time and in full, right through to the business planning where we work together for the benefit of our retailers and ours. As we have discussed before, in-store execution is critical to our long-term success. Whilst we have great examples within our business, our performance frankly has been uneven in this area and we have prioritized this over 2009 for improvement.

In 2009, for the first time we have mandated a single score card across all of our key operations to track performance on the key sales fundamentals. By establishing aligned KPIs we have become clearer about our performance in critical metrics, such as on-shelf availability and share of shelf. And not surprisingly, we are showing improvements there. With sharper accountability and clearer metrics, we can now drive performance improvement.

Where we were behind some of our competitors, we are catching up. And where we are ahead of our competitors we are increasing our gaps. We are striving to understand the needs of major customers better and the behavior of their shoppers, so that we can grow their business and grow the business with them.

Now, I''m pleased with the way we have rolled out with discipline, our joint business planning across the business to a wide range of customers. We are now using it to identify and to take opportunities to our mutual advantage. Our actions are starting to be recognized as well, gaining preferred supplier status in a number of markets or indeed awards, supplier of the year in some of our key markets from some of our key customers.

You can see from the chart that we are improving service levels in almost all key markets. On-shelf availability is improving as well, up to 89% in the second half. The customer insight and innovation centre concept, which some of you experienced in New Jersey at our investor seminar that we held in November is now being rolled out globally. Last week we opened the second center here in the U.K. in Leatherhead at our MCO. Later we will do the same in several other countries around the world.

Now, let''s turn to the third area, which is winning through continuous improvement, equally important. I will not go back over the numbers, which you already have heard, tempting though they may be because these numbers are good. But let me remind you of the model.

Volume growth leads to operating leverage which, in turn lowers unit costs. At the same time, we are removing with discipline costs which do not add value for the consumers or customers. Taken together this creates substantial fuel for growth and gives us scope to reinvest in the business while steadily improving the operating margin.

Up until 2009 too many of our brands lacked the investment and the support to compete effectively. In 2009, we took the first steps towards fixing this by materially increasing advertising as well as promotional expenditure, realigning prices which had in certain places become uncompetitive and investing substantially in product quality. We were able to do this while still increasing underlying operating margin.

And this model certainly hasn''t run out of steam yet. It sounds simple, but it requires a growth mindset and the confidence to invest in our brands and yes, it requires a lot of hard work. Overheads as a percentage of turn over have been held flat in the year, despite the dilution impact from disposals we''ve had in 2008. The full year benefit of the headcount reductions that we made in the second half of 2009 will provide further scope for savings, I believe in 2010.

To further leverage scope -- scale, to further leverage scale, we have announced our move to global business services. Our plan is to build on the excellent work started in the regions. We will bring HR and finance transactions, IT services, information management services, office and facilities services all together under one roof in first class organization. In so doing we will improve services and reduce costs at the same time.

Now, cash flow performance has been equally good. By getting working capital into everyone''s targets, linked to pay and by adopting best practices from around the globe, we''ve made good progress I believe, in all elements of trade working capital, but especially inventory despite the fact that our starting point for this company was already fairly competitive.

You can see from the chart here that this has not been a flash in the pan, but a sustained improvement throughout the year. Now, we will target lower average working capital in 2010 rather than quarter-by-quarter end positions, we will now go through average working capital. This will put further emphasis on keeping working capital always low rather than simply achieving the period end reduction. It''s a much more transparent and honest way to get sustainable working capital improvement.

Turning to the fourth thrust, I am particularly pleased with the progress we are making on the organization and performance culture. We''ve always said it will take several years, but here again we''re making good progress. And we are calling this winning with people. During the year we have reduced the number of managers from around 16,000 to nearer to 15,000. The number of senior managers has been reduced in size by almost 50% from the levels of 2005. Taking out layers of management has allowed us and the organization to become flatter, more agile and more externally focused.

We''ve seen management changes in over half of our top roles in the last 12 months alone and almost all involving internal changes. And we have better skill matched against the new roles that are required with each new appointment. Our management system around targeting and alignment have been systematically sharpened during the year and improved. Individual performance against measurable criteria is now more visible and individual performance assessments are becoming more robust, more differentiated and as a result, also reflected in more differentiated pay.

And as we toughen the benchmarks, we will also increase the potential rewards for exceptional performance. At the same time, we will expect management to also increase further long-term share ownership. Now, you will hear more about this at the annual general meeting. In short, more stretching targets, driving superior performance and only if achieved, only if achieved more reward.

So as I draw towards a close, there has been much that is good but not everything in the garden is rosy yet. You''ve heard me say that the progress we are making is helping to narrow the gap to best in class, keeping in mind that best in class companies never stand still either. I expect the catching up to continue for the next couple of years. And while there are many things to be pleased about, there is still much more to do.

Although improving, we still have some countries and category positions that need to do better. Our competitive positions in India and Spain and in Eastern Europe have not yet improved to the extent that I would have expected. Our sequential performances in hair and SCC are improving but still we need to build share consistently everywhere.

I talked about product quality. Yes, it is getting better, but we need to do more to get more of our products start showing the superiority. Yes, brand equities are strengthened, but not yet everywhere. And our internal surveys with our employees indicate that we''re not yet as consumer and customer focused as I''d like and that we can be faster in the way we operate. So there is still much more to do and much improvement still to be made. But, as the saying goes, Rome was not build in one day. I do believe though that in 2009 we''ve made a good start.

Now, I fully expect that the environment in 2010 will be just as tough as in 2009. And we are prepared for that. We have the confidence that comes from a strong delivery in 2009. We expect volume and value shares to further improve throughout the year, behind a clear step up again in brand support and innovation. We expect stronger delivery of savings like we''ve done in 2009. And we expect further shaping of the organization and culture.

But we are far from complacent. We know that competition will be tougher and that consumers will be even more demanding and rightfully so. Our priorities therefore for 2010 are to drive volume growth whilst providing a steady improvement in underlying operating margin and strong cash flow. With that, I''ll finish my talk and we''ll open it up for questions. Thanks for your attention.

Question-and-Answer Session

James Allison

Just the usual routine on housekeeping, if I may say so, if you''re in the room and you want to ask a question then stick your hand up. If you are selected then please press the little button on your console and that will allow everybody to hear you. Please tell us who you are. And if you don''t mind, please restrict yourselves, at least at the outset to no more than two questions.

If you''re listening via the teleconference and hello Marco, then you want to poll for a question, then you can key star one and you''ll get in the line for the question and Marco you''re in on that. And if you want to retract that then you press start two. We''re also taking questions via the web and if we''ve got time, we''ll take them as well. So without further ado, then let''s have your hands up and take some questions from the audience.

Unidentified Audience Speaker

I’ll ask two questions on Europe (technical difficulty) this is your most challenging region, the price volume elasticity -- sorry, price volume elasticity equation is not as good as the other regions and it looks as if you are investing a lot in A&P. So I''d just value any general commentary on how you are seeing Western Europe. Specifically could you comment on the spreads business in Western Europe? It looks to me as if pricing in particular has been difficult there. And I''d value some specific commentary on how that part of the business has performed? Thanks.

Paul Polman

Yeah. I''ll let Doug add to this. Obviously, Western Europe is a tough environment on a macroeconomic level and that''s reflected in our results and our competitors'' results. Despite that, I believe that Doug and his organization do an outstanding job. We have actually seen our volumes progress throughout the year and we''ve seen actually our shares increase throughout the year in fairly tough conditions.

In our personal care business our foods and homecare business, I think we have many examples, where we have built here and countries like the U.K. we''ve actually grow our business as well. But you are right to say and it''s fair to say as well, we''ve made a conscious decision that we should not manage Europe just for profit but that we should actually grow Europe for long-term shareholder value creation. I''ve mentioned that to you last year that was our strategy. And we''re executing against that strategy.

And part of that reflects also an increase A&P spend in Europe to support that. And despite that, we''re ending the year more or less in Europe with good progress and margins in line with the company average. So I think that is delivering against that objective. And we''d hopefully see a lead coming in quarter three more or less of 2010, we expect to actually accelerate on that.

On SCC, very simply there have been price investments. But again, in 2008 prices were taken up about 18 to 20% in that category on the -- as a result of input cost inflation. And some of that, if the price is coming down in this year, we obviously have reflected in prices to stay competitive. And that was again the right decision, because we''ve built share on that business across the year. So I don''t know Doug, if you want to add to that anything specific.

Douglas Baillie

I don''t think so. I think just that there''s been just a dramatic step up in terms of our execution capability, our focus on the real basics in the organization. And we''ve made a number of changes in terms of the leadership of the team. I was just working out quickly we''ve changed nine people out of the 15 people that directly report to me. Actually, we have a really fired up team now that is getting the business really competitive.

We still have a long way to go. We still have much to do. A lot of the points that Paul, covered today really apply to Western Europe in terms of the areas that we''ve got to step up. But I think there''s a growing sense of confidence in the team. There''s a growing sense of belief that we can win. And the best result from the industry was to see the share start to move and get back to competitive growth. On SCC specifically, we''ve worked very hard this year at filling the portfolio and covering price points. Those of you who were with us in November, about 18 months ago will remember I spoke about getting tool boxes in place to cover price points and portfolio gaps.

And in SCC that''s been particularly, particularly good for us as we''ve gone out and covered right from the very bottom of the pyramid, right up to the more premium sort of areas. And having that coverage allows consumers to stay with the Unilever portfolio as they trade up and down, so lots to do, but a bit of a step up certainly for us, but hopefully a lot more to come in 2010.

Paul Polman

I was on Monday and Tuesday with Doug and the management team, the European management team in Barcelona. They had their annual powwow of how are we going to meet the 2010 targets. And I''m sure they''re going to do that. But it''s very good to see that the growth curve is better and we have very strong initiatives that we''re launching. On the laundry, we had the Small & Mighty that we''re introducing and both Persil and Surf we talked about.

The Dove for Men is a very strong initiative being rolled out in Europe. The Signal White Now and the mouthwash that comes with it are very strong initiatives. Our deodorant business is growing again. So Europe is back in the game. I''m European, most of you are European. And what I always remind myself is that Europeans are human beings as well and they will go for product improvements if it makes sense. So let''s get rid of all the excuses, shake them off and start growing. Next question.

Jeremy Fialko – Redburn Partners

Yeah. Jeremy Fialko with Redburn Partners. A couple of questions. First of all on A&P. Obviously, there''ve been some big increases in the latter part of 2009. Can you just talk about what you think that is going to happen there in 2010? When you might start to see more incremental increases in A&P as a percentage of sales? And secondly, you''ve changed an awful lot of managers over the course of the last year. Would you say you''re pretty much done with getting the people you wanted in the top jobs and we''re going to see much fewer -- much less turnover of the top managers in 2010? Thanks.

Paul Polman

Thanks, Jeremy. On the A&P, we''re up 80 basis points for the year and obviously a little bit more to see towards the back half. In the last quarter, we''re up about 250 basis points roughly from memory. So these are big A&P investment at a time when the rates have come down as well. So there''s a double effect. You''ll be pleased to hear that most of that investment about 80% of that, is in the A and not in the P part. And that''s good because that''s even better collateral to build our brands long-term. So I''m happy about that.

And the reason it is steeper at the back half of this year, that''s because we''ve had so many innovations that accelerated over the back half of the year, as we were getting ready for them during the year. There is no reason, as we will continue to capture efficiencies over 2010, that we reinvest some of that into A&P to further strengthen our brand and support our innovations.

We have increased our relative share of voice. Today we lead it, but we still have many places and many shelves as we call them, where we are not as competitive as we should be. And as these innovations are being rolled out, we certainly will look at quality support behind that and without giving you more details of that, I expect a significant increase in A&P spend in 2010 as well.

The second question that you had is on the management changes. The change is inevitable in this business obviously and we will continue to look for changes where they make sense. As we aspire to double our business and become an organization of 80 billion euros or more, we also need to be sure that we have the capability and the people that are 80 billion of more. We broadly have that in the organization. But we will continue to look at skill sets inside and outside that we need to have -- to get there. And I think a lot of people now have rather new assignments over the last six to nine months and those people obviously will be in those assignments for the next three to five years.

But there is no reason, why we will not continue to look at other changes, if I may be frank. I like to quote always Mario Andretti, the one of my famous friends and race car drivers, who said if things around me change faster than I am, I know I am in trouble. So I do know the competition also continues to look at improving their organization. And we should do the same thing like we do with our brands and like we do with our efficient.

Christopher Wickham – MainFirst

Yeah. Hi, it''s Chris Wickham from MainFirst. Just two questions on the D&E markets. Where do you -- I appreciate that across most of the sales and the categories you''re gaining share within category. How do you feel that your categories are performing in terms of gaining share within the D&E wallet and in terms of prioritization? And the second point is -- you''re talking about adding 1 billion customers in the next 10 years. Just could you remind us perhaps how does that compare with the progress that was made in the past 10 years in D&E?

Paul Polman

Yeah. As you have seen in the D&E in the last quarter alone our growth is over 9%. So that''s healthy growth. Fortunately, we''ve been blessed as the D&E market has held up well, but we''ve outperformed those markets in terms of GDP growth and we''ve mentioned before that one of the key drivers for us in the emerging market is actually market development. It''s growing the pi [ph]. So a lot of that growth is actually coming from market development.

The 1 billion incremental customers are coming from the two things there, the growth in the demographics in those countries and actually the consumers entering our choice set, if you want to. Our products are very well placed there and in most of the places where you see that strong consumer growth we''re actually market leaders. You take a market like Vietnam where, in a lot of categories, we have the leading brand and even if -- or Indonesia. And even if competitive activity increases, this obviously is a good thing for the consumers there to accelerate the rate of innovation.

If we do our jobs, we see not only the market accelerate further but we also see our share increase. So we think that the bulk of the growth moving forward and the incremental 1 billion consumers, the main driver behind that will be market development.

Yeah. Sorry. We''ll get to. Now, you -- yeah. Okay.

Nico Lambrechts – Bank of America/Merrill Lynch

Nico Lambrechts from Bank of America-Merrill Lynch. Paul, last year towards the back end of the year around November, I think you explicitly cautioned the markets not to assume continued increases in volumes going from zero, three and then five. You did end up with a 5% volume growth. What would you ascribe the main reason for the better than your expected volume growth? Is it the lower price or is it stronger growth from emerging markets? Or is it the impact from innovations? That''s the first question.

And then the second question is, you mentioned that half the top management team are in new roles, almost all of those are internal. Could you maybe just remind us how much of the new top management are external appointments versus internal changes? Thank you very much.

Paul Polman

I appreciate the question. The growth actually is -- what I would still caution for is that life is not made out of three months. I''m personally not a big proponent to have discussions with all of you on two months numbers and of one more trading day or one less trading day our systems change last year or a little bit of a climate change in some country affecting our ice cream. I think if you run the business like that and have an honest contact with all of you on quarterly numbers with all these little adjustments, I think you miss the big picture and obviously.

So what I think is our markets are growing 2 to 3%, are indeed growing 5% now. I don''t think we should assume accelerations of that growth. I''d say the same thing as what I said before. I think these are very healthy growth levels in competitive markets, ahead of the markets for building share. And the main driver of that obviously, as you rightfully say, is not pricing because our volume and value shares, if you look at very carefully our volume and value shares are both going up.

So our relative pricing stays the same. We''ve just been very early in the year, compensating for price increases that were frankly out of whack in 2008. And it''s been mainly in these categories of SCC or household cleaners or laundry that we have done that. And what you see in the last quarter is the full year effect of that. You guys all understand that when you analyze the numbers. We have in the last quarter of 2008 and ''09 a little over 9% price increase. The highest price increase of any of our competitors, despite what they said, you go back to the numbers was 7%. So we were early in adjusting that to stay competitive.

But our pricing strategy has not changed and don''t be mistaken. Our pricing strategy is to stay competitive with the market. And the fact that our volume and value share both go up confirms that. So the key driver of our innovations is the -- the key driver of our volume growth is the acceleration of innovation. If you go to the second element, which is the top 100 people, in fact only 8% of the top 100 people come from the outside. It happens to have a little bit of a higher exposure and I can only apologize for that, by the fact that I came in from the outside or Jean-Marc or Genevieve in R&D came in from the outside or Pier Luigi.

So it looks like if you look at the top, all the three or four people are coming in from the outside. But you have not seen and perhaps we haven''t talked enough about that, about the many appointments we made inside in the company by giving people other challenges and better skill matching of promoting people. And we''ve done plenty of that. So if you take the top 100 that really are the key change leaders, if you want to or the people running this business about 8% come from the outside. And that''s a very healthy mix of 8%. Yes, so eight of 100 is eight people.

So it''s a very -- that''s an easy calculation I can make. It''s about as far as I go. But -- so it''s a very healthy ratio, by the way. But I think -- we don''t run by ratios but even if we got to 10 or 15% it''s still fairly healthy for running a company like this. Because we also increasingly need to bring in this external benchmarking and be sure that we not only are internally strong but also against the competitor set. We''ll take one more question here because otherwise I (inaudible) and then we go to the -- yeah.

Sara Welford - Citigroup

Hi, it''s Sara Welford from Citigroup. Two questions. Firstly, on the innovation pipeline, can you must talk about is there going to be any skew at all that we should be aware of for 2010 like there was in 2009? And secondly, going back to the D&E market, the perception at the moment is that perhaps competition is increasing there. But, as you mentioned, this partly helps the markets evolve. How do you see this moving forward on a longer-term basis?

Paul Polman

Yeah. Now, those are good questions. I''ll start with the last one, if you don''t mind and then go to the first one. I think it''s quite normal that competition starts look at where the consumers are growing. And look at where the 100 million plus consumers are. And those are markets we should focus on as we want to expand. That''s frankly not a new phenomenon. And the fact that someone talks about it now, you might ask yourselves where have they been before. So Unilever has had a strong presence historically in a lot of these markets. And we''ve always said that our strong competitive positions in a lot of these D&E markets is an advantage.

Now some people were worried about that at the beginning of 2009 with the economic crisis. But these countries have now achieved a certain level of maturity and stability. So if we do our jobs well and continue to innovate our brands and stay close to consumers, we should welcome that competition. That is what the business we''ve chosen to be in. It''s good for the economies. It''s good for consumers. But it''s also good for us. And over and over, where we see this increased competitive activity, you actually see an acceleration of market growth.

So looking forward, I don''t expect us to decrease. But I think that''s very healthy. And we certainly know how to operate in that environment. In terms of innovations, I will obviously not share with you some of the new innovations that will be coming in 2010 until we launch them. But to give you a little bit of an idea and to build on the previous question, Dove Nutrium that I have here. It is a wonderful product and certainly superior than anything else on the market. We''ve just introduced that in 30 markets in the last quarter alone -- sorry, in three but going into 30 markets. But we''ve just introduced, sorry, we''ve just introduced that going into 30 markets now as we talk. So that''s a big improvement.

If you look at Dove for Men, male cosmetics increasing tremendously, you just saw the advertising. Dove for Men is a tremendous strong product that will go into 50 markets as we talk. So those are big improvements that we''re putting in, the AXE twist that you see here, so again tremendous product going into 50 markets as we talk.

I just had a board meeting yesterday and we had them all taste Magnum Gold. And there''s one thing about ice cream, it makes people happy. So we had a happy board which is good for me as well. And so I decided from now on to give our board ice cream before they do my performance review. But the Magnum Gold, which is one of the leading ice cream products, is growing very fast. We''re launching that now in about 30 countries, 27 countries to be exact.

So you see an acceleration and the list goes on, by the way. So you see an acceleration of our innovations clearly coming through that will benefit us for years to come. We''ll take one question on the line then. I hope we''ve answered it, yeah. Thanks.

Unidentified Speaker

Yeah. We should have actually two that are on the telephone line. Marco Gulpers is first up. Marco, can you come through?

Marco Gulpers – ING Financial Markets

Yeah, good morning. I have two follow-up questions. The first is indeed on an update on the underlying market growth and maybe you want to split that into regions, to share with us what you''re seeing on underlying market growth and basically combining that with current consensus in the market of about 3% volume growth in 2010, a further acceleration compared to 2009? The second question is basically on the dividend, the 19.5 cents. What does it actually mean for the full year ''09 number? Thanks again.

Paul Polman

Marco, let me just take the first part of the question on the market growth and then the second part of the question James will give you an answer on that. And that by the way, it''s different for the PLC, N.V. so if you have date on because that’s currency, we kept that in. On the market growth itself, we see -- we continue to see actually North America and Europe being sluggish in general.

Slightly more growth and not different, but slightly more growth on food in Europe than on the HPC side, but the market growth the way we read it, in our portfolio of products these mixes of us and our competitors might be slightly different and that''s why we might get slightly different numbers. But it''s about 1 to 2%. And in the emerging markets we have seen a healthy growth of 3 to 4%. So if you average that out and you get to about a market growth a little bit above 2% for us, if you read that. And the consensus, as a result of that, seeing our volumes accelerate over the next year from 2.3% to 3%, I would be fairly comfortable, Marco, if this is what you''re saying. So the next part is the dividend itself.

James Allison

Yeah. Hi, Marco, yes, we''ve now moved to quarterly dividends. We''ve set the first quarterly dividend at 19.5 eurocents. So now we will always set the dividend in euros and then it will translate into sterling and into U.S. dollars based on the exchange rate that prevails two days before we announce what the dividend is. But we will always announce the dividend in euros. So 19.5 eurocents is one quarter of the actual cash dividend that we paid out in 2009, our policy remains. We seek to increase in a sustainable way the dividend year-on-year.

All we''ve done so far is to announce what the first interim dividend is. And as we go through each of these quarterly announcements, we will then indicate what the dividend is going to be for the subsequent quarter. So we''re not giving guidance at this point, Marco, in terms of what the dividend is going to be for the year. You''ll just have to wait and see what comes as each quarter progresses.

Julian Hardwick – RBS Securities

It''s Julian Hardwick of RBS. Can I just follow-up on the dividend. Could you just help us understand what sort of parameter the board is looking at in terms of payout ratio? If you look at it on an EPS pre-RDI basis, you''re up close to sort of 60% payout ratio. Is that a payout ratio that the board is comfortable with or would the expectation be that over time you would look to reduce it? And is EPS pre-RDI is the basis that the board''s setting the dividend on? And on a second question in terms of board parameters capital structure. Could you just say something about the board''s current thinking about what the appropriate capital structure for the group now is?

Paul Polman

Yeah. So again let me start with the last one because (inaudible), was the first one. It''s probably better to start first. And again we had that discussion yesterday in the board in all transparency. We''re of the opinion that our A plus rating is well soft. We''re of the opinion that we want to keep that. And I think the events of the last few years has brought to light why a solid capital structure is preferred. We look at our normal capital investment which I have said before, we''ll slightly increase as we grow again and build new factories. It has been relatively low in this company and we should welcome that.

We more or less are happy with our dividend payout ratio and percentage plus or minus I''m not going to argue. And then we do the 1 to 2% bolt-on and it happens to -- sorry 1 to 2 billion euros bolt-on acquisition. And it happens to be there in 2010 I need to pay for the Sara Lee acquisition. So all of that taken together will put us in a capital structure and situation that maintains our A plus rating and we feel comfortable about that. So that''s how we look at 2010 and then obviously assumption of how the business is doing, we will assess moving forward. And that actually also then answers the dividend question. Do you want to add to that?

James Allison

Just to acknowledge that the payout ratio is indeed high. It''s in the high 50s and that''s higher than most of our competitor set. So I guess in the longer term you can imagine that as earnings per share starts to ramp it up, maybe the dividend increase isn''t quite in line with the rate in which we''re increasing EPS until such times as we''re perhaps a little nearer to the rest of the pack.

Paul Polman

I think we have -- we will continue to increasingly look at opportunities to give you the return for giving us the money. And we have to earn that right and that''s what we''re working on.

Charles Pick – FinnCap

Yeah. Thanks, good morning. Charles Pick at FinnCap. I have two questions please. You identified 1 billion euros of extra cost savings in the current year, which 300 million comes from restructuring actions. Is the bulk of the remainder coming from purchasing economies? And secondly reference the A&P is it possible to give some sort of pointer as to how much of that is now being directed at Western Europe?

James Allison

Yeah. Yeah. You can say.

Paul Polman

No, contrary to what people think it. When input costs go down, for example, because markets of raw materials go down, that for us is not a saving. We don''t book that as saving. Savings in our system, which are 1.4 billion, so they''re a little bit higher than what you said, are truly doing things differently than we did before. And that''s the area that Pier Luigi is responsible for and we still think that we have enough to go to set again the target fairly ambitiously for 2010. So those are real savings and efficiencies. Obviously, our competitors worked that as well so I don''t know what the relative advantages. But I think for the size of our business coming out with 1.4 billion euros, we are probably are close to get in terms of efficiencies versus our competitors. For 2010 we''re talking. Yeah, correct.

Charles Pick – FinnCap

Yeah. I’m just wondering how that''s split, because you gave us 300 million from rationalizations benefits [ph]?

Paul Polman

Okay. We don''t really split that, to be honest. We''re not -- we have our own internal targets for all of the components. But I think that''s not too relevant any more for the market where the differences come from. I don''t think we split that.

James Allison

No, but most of it is going to come from buying, savings.

Paul Polman

No. Obviously, but I don''t think we''ll go into the split. And then the second thing was your question on A&P. The question being if we would continue to -- yes, how much is Western Europe. We have -- if you look at Western Europe right now, our gross margins are up in Western Europe and our A&P is up significantly if you look at 2009. And these investments are starting to pay out. So I think you will see further investments again in A&P in Western Europe.

If you take the 80 basis points as a whole for the company, it''s about the same basis points for Western Europe more or less. I''m doing this from memory so don''t quote me on this, the 10 basis points it''s up. But I see Doug nodding his head, so about the same.

James Allison

It''s in proportion. It''s not longer.

Paul Polman

Right. Right. So Doug is saying, yes. So that is part of it. Yeah. Go ahead.

Olivier Croquet - Cheuvreux

Olivier Croquet [ph], Cheuvreux. Two questions. The first one is on this chart with commodity prices and your pricing. At the end of the day, two years later you say you are 5% higher than in Q4 ''07. What does it mean in terms of price point and premium versus own label or your key competitors? Broadly speaking and if anything, would you sense that 2010 you will have to reduce that premium or you said you are happy where you are, but getting a clearer picture on this would fine. The second question is having a brand review. What are the brands where you still have lot of work to do? Specifically, I would be happy to hear the update on Dirty''s Group and Knorr and any other one you would like to comment on? Thank you.

Paul Polman

When you said work to do, what do you mean?

Olivier Croquet - Cheuvreux

You are not happy with the brand equity. You still have to crack the nuts and you don''t know exactly, how you will move forward in the next two or three years?

Paul Polman

Yeah. When there was a lot of price inflation in 2008, branded products reflecting a price increase, it had to be done. And we were very early to do that and took more pricing than our competitor set once more. It increases the absolute gap versus private label. Private label is at 50 and you''re at 100, you both do the 10% price increasing. You''re actually increasing the absolute gap by 5. Not surprisingly, we saw private label growing a little bit, especially in the European and the U.S. environment on top of the economic pressures that were taking place.

So the same token, as these prices have come down with the easing of input costs, the relative price difference versus competition actually has come down. And if I was just looking at the Bernstein report on European private label so I''m quo