Question-and-Answer Session
Operator
Thank you. (Operator Instructions) Your first question is from the line of David Adelman with Morgan Stanley.
David Adelman - Morgan Stanley
Good afternoon Louie and Hermann.
Louie Camilleri
Good afternoon David.
David Adelman - Morgan Stanley
Louie, let me start with currency. I obviously and other outsiders try to forecast the adverse currency impact or the currency impact. Clearly I was fairly far off in ?09 and I’m just curious, is there something other than translation that’s substantial, that’s having that magnitude of a negative impact were there are hedging gains that aren’t replicable, are there transactional issues in the businesses in ’09, etc.?
Louie Camilleri
No, it’s purely translation David. I mean, I don’t know what your models and other models are. My own sense is you have probably underestimated the hit, the currency hit in terms of translation of the emerging markets. If I just take four principal emerging markets; if I take Russia, Turkey, Mexico and the Ukraine, those four markets alone account for some $0.60 of the $0.80 hit and I would suspect that your models probably haven’t factored in such a hit for those emerging markets.
David Aldeman - Morgan Stanley
Okay. Secondly Louie, are you and the board prepared, at least temporarily, to allow the payout ratio to drift above the 65% target in the short term?
Louie Camilleri
Most definitely.
David Aldeman - Morgan Stanley
Okay, good. Thirdly, is there any evidence to date or any realistic risk that some of your global competitors that are based in a market whose currency has not appreciated to the extent of the dollar like the British pound, have been or will be more willing to reinvest in the markets with price competition or greater levels of spending behind their own innovation?
Louie Camilleri
I think you’d to have ask them that question directly David. The evidence would suggest, over the last couple months, and there’s been quite a lot of pricing activity across the world, the evidence would suggest that nobody at this stage is trying to use a currency benefit, to get some sort of competitive advantage. The year is still early, but we haven’t detected anything.
My own sense is that, just the way you haven’t given us much currency benefits in 2008, investors are unlikely to give much currency benefit to our two key competitors who report in sterling. I think that investors tend to look at constant currency growth rates more and more, especially in these volatile times.
- To read the full transcript on Seeking Alpha, click here »
