Unilever in Russia
Antoine de Saint-Affrique, GVP Central & Eastern EuropeHerman Verstraeten, President Russia
JP Morgan Investor Conference, Moscow 16 May 2008
Safe harbour statement
This presentation may contain forward-looking statements, including 'forward-looking statements' within the meaning of the United States Private Securities Litigation Reform Act of 1995. Words
such as 'expects', 'anticipates', 'intends' or the negative of these terms and other similar expressions of future performance or results, including financial objectives to 2010, and their negatives are intended to identify such forward-looking statements. These forward-looking
statements are based upon current expectations and assumptions regarding anticipated developments and other factors affecting the Group. They are not historical facts, nor are they guarantees of future performance. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including, among others, competitive pricing and activities, consumption levels, costs, the ability to maintain and manage key customer relationships and supply chain sources, currency values, interest rates, the ability to integrate acquisitions and complete planned divestitures, physical risks, environmental risks,
the ability to manage regulatory, tax and legal matters and resolve pending matters within current estimates, legislative, fiscal and regulatory developments, political, economic and social
conditions in the geographic markets where the Group operates and new or changed priorities of the Boards. Further details of potential risks and uncertainties affecting the Group are described
in the Group's filings with the London Stock Exchange, Euronext Amsterdam and the US Securities and Exchange Commission, including the Annual Report & Accounts on Form 20-F.
These forward-looking statements speak only as of the date of this presentation
Agenda
• Unilever’s D&E strategy
• Building a stronger business in CEE
• Outpacing the market in Russia
• Questions & Answers
Agenda
• Unilever’s D&E strategy
• Building a stronger business in CEE
• Outpacing the market in Russia
• Questions & Answers
Unilever’s strategic priorities
PersonalCare
D&E Vitality
GDP of D&E countries has already eclipsed the Developed world
10.8
31.9 33.8
0
10
20
30
Developed D&E
GDP $trillion (at PPP exchange rates)
2.5% 6.8%CAGR
2007-2010e
1 billion new consumers in the
next ten years
New consumers
0.5
2.6
2.6
Have lots
Haves
Not yets
Population in 2007(billions)
The D&E opportunity
Unilever in D&E
Western Europe
38%
D&E36%
As % of Unilever total turnover
2004
Otherdeveloped
26%
2007
Western Europe
32%
D&E44%
Otherdeveloped
24%
Profitable growth
Developed D&E D&E excl.Russia & China
Operating margin before RDIs 2007
Unileveraverage
Agenda
• Unilever’s D&E strategy
• Building a stronger business in CEE
• Outpacing the market in Russia
• Questions & Answers
Unilever in CEE
An early entrant in the region
Strong category positions in key countries
Brands sold in total of 20 countries
4 multi country organisations
Strong local management
Strong, sustained GDP growth
Real GDP growth % 2006 2007-2011
• Western Europe 2.8 2.3
• CEE 6.3 5.5
CEE has same GDP as China
Source : Economist Intelligence Unit 2007
A rapidly increasing middle class
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2003 2008
LSM6LSM5LSM4LSM3LSM2LSM1
x 2!
Segmentation by Economic Class in Russia
Shower Gel EUR / Capita
0.4 0.5 0.7
1.6
6.8
3.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Brazil Ukraine Russia Poland Germany USA
Opportunities for market development
Deo EUR / Capita
3.3
1.6 1.3
2.8
4.6
7.1
6.1
0.01.0
2.03.04.0
5.06.0
7.08.0
Brazil Ukraine Russia Romania Poland Germany USA
Annual per capita consumption (EUR)
Source: GMI1/Statistical Offices
Packagedfoods39% Non
packagedfoods61%
Conversion opportunities in foods
Source: Unilever CMI estimates% of Foods market in Russia
Unilever CEE by Geography
Poland & Balticsc30%
Russia, Ukraine, Belarus c30%
Central Europe c25%
The Balkansc15%
Unilever CEE by Category
Ice Cream and Beverages c20%
Home Care c10%
Savoury, Dressings and Spreads c40%
Personal Care c30%
Strong market positions across the region
RomaniaRussia Poland CzechiaHungary
Skin Cleansing
Hand and Body Care
Household Care
Savoury
Spreads
Deo
Hair
Dressings
Ice Cream
Source: GMI1 (MAT 2008 February)
#3
#1
#2
#2
#1
#1
#1
#2
#3
#2
#1
#1
#1
#2
#1
#1
#1
#1
#2
#1
#2
#1
#1
#2
#1
#1
#1
#1
#1
#1
#1 #1
#2
#2
#1
#1
What we’ve done well
• Portfolio across the consumer pyramid
• Capability to build markets
• Winning with Customers
• Local roots
Differentiated brand portfolio
Spreads Hungary
Differentiated portfolio with brands
Lipton Tea Russia
Packet tea
Tea bags
Pyramid bags
Building markets – driving penetration
Mayonnaise pouch Deo ministicks Mini cubes
Cost + Margin = Price
Reverse Engineering
Affordable Unit Price – Margin = Target Cost
Conventional
Driving penetration profitably
Building markets – trading up
Staple surface cleaner Triggers
Staple bleach Premium bleach
Claim resolution delay - Poland
Best supplier 2007
Best customer service 2007 Poland
5 Mia Piac (Hungary) awards for best launches
4 PIATA awards in Romania in 2007
Winning with Customers
OPERATIONAL EXCELLENCE PARTNER FOR VITALITY DOING WELL BY DOING GOOD
Our heritage and local expertise mean that D&E is in our DNA
Unilever’s local roots
Local roots
• Understanding of the local consumer
• Brands and products across a wide range of income levels
• Critical mass on the ground
• Corporate reputation with local stakeholders and talent pool
Local talent meeting local needs
• A long standing Unilever tradition
• Growing local talents
• Leading to a strong local pool of talents
• 34 expatriates out of over 8000 employees
• CEE as a net exporter of talents to Unilever : 65
• Market recognition
• Consistently within the top 3 employers in Hungary and Poland
• Chairwomen of SCE elected Business women of the year in 2007.
• Personal prime minister award to the CE Sales Director
• In the top Head Hunter targets, across the region
What’s changed
• Increased global leverage
• Sharper strategic clarity
• Enhanced operational excellence
• Doing well by doing good
Global Innovation: Clear
Global brands, local activation
• The best integrated campaign
• Creative local execution
TV Print
Radio
Internet
Events
Trade
Sponsorship
PR
Bom ChickaDevergo summer
collection
BomChicka
songs & video clip
Advertising: Knorr
Leveraging scale
Driving growth and margin
• One Unilever
• Shared services and outsourcing
• Simplification and country clustering
• Global and regional buying
• Supply chain efficiency
Strategic choices:Investing to win in Russia
• Priority status: 5 year growth plan
• Increased capabilities in Moscow
•Innovation
•CEE headquarter
• Step-up in marketing investment
• Priority allocation of talent
Strategic choices:Investing to grow the Deo category
annualised
GROWSHARE
GROWMARKET
Operational excellence: in-store activation
Operation excellence: aggressive shelf management
Hygiene
Women’s empowerment
Nutrition
Doing well by doing good
Sustainability
in Poland for
KIDS
Accelerating change
Outpacing the market in Russia
Strategic choices:Investing to win in Russia
• Priority status: 5 year growth plan
• Increased capabilities in Moscow
•Innovation
•CEE headquarter
• Step-up in marketing investment
• Priority allocation of talent
A healthy base, and a great potential
#3
#1
#2
#2
#1
Skin Cleansing
H&B
HHC
Savoury
SCC
Deo
Hair
Dressings
IceCream
Source: GMI1 (MAT 2008 February)
#1
#1
#2
• Total € 5 bln market (all categories)
• Growing at 8% in 2007
• Strong potential for appreciation:
Penetration / conversion (e.g. tea)
Repeat (e.g. deodorants)
Value (e.g. dressings)
• Opportunity for consolidation
#3
Our growth strategy for Russia
Delivering sustainable value in Russia:
Building leadership in large categories
Trading markets up, working the consumer pyramid
Building capabilities as a competitive advantage
Do it all consistently: excellent execution
Our growth strategy for Russia
Delivering sustainable value in Russia:
Building leadership in large categories
Trading markets up, working the consumer pyramid
Building capabilities as a competitive advantage
Do it all consistently: excellent execution
Driving for category leadership
8% 8% 8% 9% 8% 7% 8% 9% 9% 10% 10% 10% 11% 11% 12% 13% 13% 13% 14% 14% 14% 15% 15% 15% 16% 16% 16% 16% 15% 15% 15% 15% 16% 16% 16% 16% 16% 16% 17% 18% 18% 17%18%
17% 16% 17% 16% 16% 15% 15% 16%17% 18% 19% 18% 17% 17% 17% 17% 17% 17% 17% 18% 19% 19% 19% 19% 17% 18% 19% 19% 19% 19% 18% 18% 19% 19% 19% 19% 19% 19% 19% 19% 19% 18%18%4% 5% 5% 6% 6%
6% 6%7%
7%8% 7% 8% 8% 8% 8% 8% 8% 8% 9% 8% 8% 8% 8% 7% 8% 8% 8% 8% 7% 8% 8% 8%
8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%
14% 13%13% 13% 13%
14% 14%14%
14%14% 13% 13% 13% 13% 13% 13% 13% 13%
13% 13% 13% 12% 12% 13% 13% 13% 14% 12% 13% 13% 13% 13% 13% 12% 12% 12% 12% 12% 12% 11% 11% 11%11%
5% 5% 5% 5% 6% 7% 8%8%
8%8% 8% 8% 9% 10% 9% 8% 8% 8%
8% 8% 7% 6% 6% 5% 5% 5% 5% 5% 4% 4% 4% 5% 5% 5% 5% 5% 6% 6% 5% 5% 5% 5% 5%
4% 5% 4% 4% 4% 4%5%
5%5%
5% 5% 5% 5% 5% 6% 5% 6% 6%5% 5% 5% 6% 6% 6% 7% 7% 7% 7%
6% 6% 6% 6% 7% 7% 7% 7% 7% 6% 6% 6% 6% 6% 6%
65%66%66%67%66%67%70%71%73%73%74%75%
78%78%78%78%78%77%79%79%79%79%79%78%
80%80%81%80%79%78%79%79%80%80%80%80%81%80%80%80%80%80%80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
JF2001
MA2001
MJ2001
JA2001
SO2001
ND2001
JF2002
MA2002
MJ2002
JA2002
SO2002
ND2002
JF2003
MA2003
MJ2003
JA2003
SO2003
ND2003
JF2004
MA2004
MJ2004
JA2004
SO2004
ND2004
JF2005
MA2005
MJ2005
JA2005
SO2005
ND2005
JF2006
MA2006
MJ2006
JA2006
SO2006
ND2006
JF2007
MA2007
MJ2007
JA2007
SO2007
ND2007
JF2008
UNILEVER P & G COLGATE PALMOLIVE SCHWARZKOPF/HENKEL BEIERSDORF L'OREAL GILLETTE INTERNATIONAL*•Trend breaks due to databases restatement
Since 2001 Unilever more than doubled value market share where it competes in Home & Personal Care (8% to 18%)
* *Top Producers Value Shares in 6 categories, 24 largest cities: Deodorants, Shampoo, Hair Conditioners & Treatments, Liquid PW, Bar Soaps, HHC
Grow the category:deodorants education campaign
POS
TV
Metro / Transport
Beauty Salons
Malls
PR
Don’t let Body Odor undermine your BeautyWe recognize Beauty is the most important driver for women in Russia and build on
Beauty insight to introduce deodorants to everyday Beauty routine of a Russian woman.
On-going engaging of young guys into the Axe world in appealing and relevant way is the key strategic pillar for Axe and the basis of the brand’s success in Russia
Grow the deo category:deploying the global Axe brand
Drive category value:global Clear hair care innovation
Clear gained 63% weighted distribution during 10 month period and reached the target. Value share has reached 4.3% within a year, while market leader H&S is at 13%
0
2
4
6
8
10
12
14
16
JF 07 MA 07 MJ 07 JA 07 SO 07 ND 07 JF 08
Clear Head&Shoulders PanteneElseve Fructis Gliss Kur
Drive category value:Clear with superior anti-dandruff technology
24 Cities, MAT DJ 2008Total Dressings = Mayo + Ketchup + MF Sauces + Salad Dressings + Hot Sauces + Mustard + Vinegar
Nielsen Retail Audit data
Building leadership in dressings:changing the rules of the game
0.9
5.0
5.4
6.7
7.5
8.6
8.6
8.7
10.4
12.9
0 2 4 6 8 10 12 14
TOTAL TORCHIN
TOTAL KAZANSKIY ZHIROVOY K-T
TOTAL SKIT
TOTAL ESSEN PRODAKSHN
TOTAL HEINZ-PETROSOUZ
TOTAL GK NIZHEGORODSKIY
TOTAL EFKO
TOTAL GK SOLNECHNYE PRODUKTY
TOTAL BALTIMOR
TOTAL UNILEVER
Dressings market shares in Russia
0
5 000
10 000
15 000
20 000
25 000
1997 1998 1999 2000 2001 2002
Tons
Dressings: changing the rules of the game
First in the market to introduce Doy Pack Packaging in 1999
Internal sales
2000
5000
8000
11000
14000
17000
Tons
2004 2005 2006 2007
Ketchup New Innovative Packaging Introduction 2006
+54%
Mayo sales in volume Ketchup sales in volume
Light Mayo Market (value)
Others36%
Calve Light51%
MrRicco Light13%
Dressings: changing the rules of the game
Developing the Light Mayonnaise Segment
Nielsen retail audit, urban Russia market
Dressings: changing the rules of the game
Developing Functional Segments
New Becel Mayonnaise• Rich in Omega 3&6, heart healthy oils
• Rich in folic acid, vitamins B6 and B12
• Low in saturated fats
• No cholesterol
Help keep your heart healthy
Extend category footprint:Inmarko acquisition
Our growth strategy for Russia
Delivering sustainable value in Russia:
Building leadership in large categories
Trading markets up, working the consumer pyramid
Building capabilities as a competitive advantage
Do it all consistently: excellent execution
Trading the tea market up:migrating to a more profitable segment
51.6 56.3 62.4 65.1
48.4 43.7 34.937.6
0%
20%
40%
60%
80%
100%
2005 2006 2007 DJ-FM 2008
Total Teabags Total Loose
Nielsen retail audit, urban Russia market
Value composition – urban Russian tea market
Beseda in the tea market: adding consumer value in the economy segment
Beseda Monthly Moving Average Trend
1 450.0
1 500.0
1 550.0
1 600.0
1 650.0
1 700.0
1 750.0
1 800.0
1 850.0
1 900.0
J'07 F'07 M'07 A'07 M'07 J'07 J'07 A'07 S'07 O'07 N'07 D'07 J'08 F'08 M'08
Turn
over
'000
Eur
os
* Source: Unilever shipment data
Beseda: MAT turnover trendJan 2007 – March 2008
Lipton in the tea market:launching premium pyramid tea bags (#1 in 2008)
Our growth strategy for Russia
Delivering sustainable value in Russia:
Building leadership in large categories
Trading markets up, working the consumer pyramid
Building capabilities as a competitive advantage
Do it all consistently: excellent execution
Developing capabilities:Create a sustainable edge
Capabilities to enable excellence in execution
• Win With Customers
• Flexible and responsive supply chain
• Talent management
Modern Trade RetailerUL Distributor
DistributorUL General Trade/Open Markets retailer
Distributor* UL General Trade/Open Market retailer
Key AccountsUL Logistics provider
Point of Purchase
Point of Purchase
Point of Purchase
Point of Purchase
Whole-saler
Win With Customers:Control the route-to-market Focus on:
• reach and availability: highest weighted numerical distribution across categories
• route-to-market control: through in-depth understanding of the distribution value chain, at national and local levels
Off shelf promo execution(pallets,
gondolas..)
Win With Customers:Enhance focus and grip on execution
Availability Quality of shelf Promotion Speed to shelf
New items introduction
OSA
Share of category shelf
On-shelfAvailability
Relevant Assortment Listing of
Must SKUs
Market share and TO growth
1. What are we trying to achieve? CM investment
efficiency+
Improved Business Performance
2.What?
3.How? In Store checking through a 3rd party
50% of KA and top 50 universe checked monthly
One consolidated Scorecard
Bonuses of sales linked to measured KPIs
Win With Customers:Faster and better in-store execution
Murmansk Saratov
Bryansk
86% of outlets within 2 weeks of sales!
Flexible and responsive supply chain:Building competitive edge
Flexible and responsive supply chain:On-shore production capabilities
• On-shoring strategy• 4 local manufacturing sites• Close 100% of foods volumes• Significant share of HPC volumes• Export to markets outside Russia
• Invest in advanced technology• Pyramid tea bags• Roll-on deodorants
• Focus on customer service
Flexible and responsive supply chain:Availability in “one day’s reach”
.
.
12 Regional Distribution Centers (RDCs)
UKRAINE RUSSIA
One day’s reach (400km radius) 1,000 Km
Talent Management:Competitiveness through people
• A local talent base:• 40% of Board is local• A total of 10 expatriates,
of which 3 from CEE
• A sound capability retain:• 2007 turnover rates below
market average• Strong people surveys
• As a result of:• In market success• Creative approach to
talent development• Unilever reputation /
know-how
78
62
73
0
10
20
30
40
50
60
70
80
90
100
Employe Engagement Index
%Favourable
Unilever RUB External Overall Norm Best in Class Norm
7364
71
0102030405060708090
100
Immediate Boss Effectiveness Index
%Favourable
Unilever RUB External Overall Norm Best in Class N
Talent Management:Developing great business leaders
Unilever Russia Academy
• High potential development
• Focused special development program
• 2-year executive program
• Developed and delivered in partnershipwith Darden School of Business
Talent Management:Diversity as a competitive advantage
Senior management in Russia (45 FTE):
• Locals vs. expats– 35 locals – 10 expats
• Nationality– 11 different nationalities
• Gender– 15 women – 30 men
• Internal vs. external– 37 internal – 8 externally recruited in the past 5 years
Outpacing the market in Russia
Delivering sustainable value in Russia:
Building leadership in large categories
Trading markets up, working the consumer pyramid
Building capabilities as a competitive advantage
Do it all consistently: excellent execution