Unilever in Russia
Antoine de Saint-Affrique, GVP Central & Eastern Europe Herman 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
Personal D&E Vitality Care
GDP of D&E countries has already eclipsed the Developed world
GDP $trillion (at PPP exchange rates) 10.8 30
20 33.8 31.9
10
0 Developed D&E CAGR 2007-2010e 2.5% 6.8% New consumers
1 billion new consumers in the next ten years
The D&E opportunity
Population in 2007 (billions)
Have lots 0.5
Haves 2.6
Not yets 2.6 Unilever in D&E
As % of Unilever total turnover 2004 2007
Other Other developed D&E developed 26% 36% 24% D&E 44%
Western Western Europe Europe 38% 32%
Profitable growth
Operating margin before RDIs 2007
Unilever average
Developed D&E D&E excl. Russia & China 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
CEE has same GDP • Western Europeas China 2.8 2.3
• CEE 6.3 5.5
Source : Economist Intelligence Unit 2007
A rapidly increasing middle class
Segmentation by Economic Class in Russia
100%
90%
80% x 2!
70% LSM6 60% LSM5 LSM4 50% LSM3 40% LSM2 LSM1 30%
20%
10%
0% 2003 2008 Opportunities for market development
Annual per capita consumption (EUR)
Deo EUR / Capita Shower Gel EUR / Capita 8.0 7.1 8.0 7.0 6.1 7.0 6.8 6.0 6.0 5.0 4.6 5.0 4.0 3.3 2.8 4.0 3.6 3.0 3.0 2.0 1.6 1.3 2.0 1.6 1.0 0.7 1.0 0.4 0.5 0.0 0.0 Brazil Ukraine Russia Romania Poland Germany USA Brazil Ukraine Russia Poland Germany USA
Source: GMI1/Statistical Offices
Conversion opportunities in foods
Packaged foods Non 39% packaged foods 61%
Source: Unilever CMI estimates % of Foods market in Russia Unilever CEE by Geography
Russia, Ukraine, Belarus c30%
Poland & Baltics c30% The Balkans c15%
Central Europe c25%
Unilever CEE by Category
Ice Cream and Beverages c20%
Home Care Personal Care c10% c30%
Savoury, Dressings and Spreads c40% Strong market positions across the region
Russia Poland Hungary Czechia Romania
Skin Cleansing #2 #2 #1 #1 #2 Hand and Body Care #3 #2 #2 Hair #2
Deo #1 #2 #1 #1 Household Care #2 #1 #1 #2 #1
Savoury #3 #1 #1 #2 #1
Dressings #1 #1 #1 #1
Spreads #1 #1 #1 #1 #1
Ice Cream #1 #1 #1 #1
Source: GMI1 (MAT 2008 February)
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
Pyramid bags
Tea bags
Packet tea
Lipton Tea Russia Building markets – driving penetration
Mayonnaise pouch Deo ministicks Mini cubes
Driving penetration profitably
Conventional Cost + Margin = Price
Reverse Engineering Affordable Unit Price – Margin = Target Cost Building markets – trading up
Staple surface cleaner Triggers
Staple bleach Premium bleach
Winning with Customers
Best supplier 2007
Best customer service 2007 Poland
5 Mia Piac (Hungary) awards for best launches
4 PIATA awards in Romania in 2007
OPERATIONAL EXCELLENCE PARTNER FOR VITALITY DOING WELL BY DOING GOOD Claim resolution delay - Poland Unilever’s local roots
Our heritage and local expertise mean that D&E is in our DNA
• 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 roots
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
Bom Chicka songs & video clip
TV Print
Trade Radio
Internet PR
Bom Chicka Events • The best integrated campaign Sponsorship Devergo summer • Creative local execution collection
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
GROW MARKET
GROW SHARE
annualised
Operational excellence: in-store activation Operation excellence: aggressive shelf management
Doing well by doing good
Nutrition Hygiene
in Poland for
Women’s empowerment Sustainability KIDS Outpacing the market in Russia Accelerating change
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
Skin Cleansing #2 • Total € 5 bln market (all categories) H&B #3
Hair #2 • Growing at 8% in 2007
Deo #1 • Strong potential for appreciation:
HHC #2 ¾ Penetration / conversion (e.g. tea)
Savoury #3 ¾ Repeat (e.g. deodorants)
Dressings #1 ¾ Value (e.g. dressings)
SCC #1 • Opportunity for consolidation
IceCream #1
Source: GMI1 (MAT 2008 February)
Our growth strategy for Russia
Delivering sustainable value in Russia:
¾ Building leadership in large categories
¾ Trading markets up, working the consumer pyramid
¾ Building capabilities as a competitive advantage
Do it all consistently: excellent execution Our growth strategy for Russia
Delivering sustainable value in Russia:
¾ Building leadership in large categories
¾ Trading markets up, working the consumer pyramid
¾ Building capabilities as a competitive advantage
Do it all consistently: excellent execution
Driving for category leadership
Since 2001 Unilever more than doubled value market share
90% where it competes in Home & Personal Care (8% to 18%)
81% 80% 81%80%80% 80% 79% 80%80% 80% 79%79%80% 80%80% 80%80%80% 78% 79%79%79% 79% 79%78% 80% 78%78%78% 78%77% 78% 74%75% 73%73% 71% 70% 67% 70% 66%67%66% 65%66% 7% 7% 6% 6% 6% 6% 5% 5% 6% 7% 7% 7% 7% 7% 7% 6% 6% 5% 6% 5% 6% 6% 7% 6% 5% 5% 6% 6% 6% 6% 6% 60% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 6% 6% 5% 5% 5% 8% 7% 6% 6% 5% 5% 5% 5% 5% 5% 8% 5% 4% 4% 4% 9% 8% 8% 8% 5% 8% 8% 8% 9% 10% 11% 4% 4% 4% 4% 8% 12% 12% 11% 50% 4% 5% 8% 13% 14% 12% 13% 12% 12% 12% 12% 11%11% 13% 12% 12% 13% 13% 13% 13% 13% 13% 5% 6% 8% 13% 13% 5% 7% 13% 5% 5% 13% 13% 13% 13% 13% 13% 13% 14% 8% 14% 8% 8% 8% 40% 8% 8% 8% 8% 8% 8% 8% 8% 14% 8% 8% 7% 8% 8% 7% 8% 13% 13% 13% 8% 8% 8% 8% 14% 14% 9% 8% 13% 14% 8% 8% 8% 8% 8% 7% 8% 8% 8% 30% 7% 5% 6% 7% 19% 19% 4% 6% 19% 19% 18%18% 5% 6% 6% 18% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% 17% 19% 19% 18% 18% 17% 18% 19% 17% 17% 17% 17% 20% 18% 19% 18% 17% 17% 17% 17% 17% 16% 16% 16% 16% 15% 15%
10% 16% 16% 16% 16% 16% 16% 16% 16% 17% 18% 18% 17%18% 14% 14% 14% 15% 15% 15% 16% 15% 15% 15% 15% 16% 12% 13% 13% 13% 9% 10% 10% 10% 11% 11% 8% 8% 8% 9% 8% 7% 8% 9% 0% JF MA MJ JA SO ND JF MA MJ JA SO ND JF MA MJ JA SO ND JF MA MJ JA SO ND JF MA MJ JA SO ND JF MA MJ JA SO ND JF MA MJ JA SO ND JF 2001 2001 2001 2001 2001 2001 2002 2002 2002 2002 2002 2002 2003 2003 2003 2003 2003 2003 2004 2004 2004 2004 2004 2004 2005 2005 2005 2005 2005 2005 2006 2006 2006 2006 2006 2006 2007 2007 2007 2007 2007 2007 2008
UNILEVER P & G COLGATE PALMOLIVE SCHWARZKOPF/HENKEL* **BEIERSDORF L'OREAL GILLETTE INTERNATIONAL Top Producers Value Shares in 6 categories, 24 largest cities: •Trend breaks due to databases restatement Deodorants, Shampoo, Hair Conditioners & Treatments, Liquid PW, Bar Soaps, HHC Grow the category: deodorants education campaign
POS
Metro / T Transport V
Beauty Salons PR
Malls
Don’t let Body Odor undermine your Beauty We 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.
Grow the deo category: deploying the global Axe brand
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 Drive category value: global Clear hair care innovation
Drive category value: Clear with superior anti-dandruff technology
16
14
12
10
8
6
4
2
0 JF 07 MA 07 MJ 07 JA 07 SO 07 ND 07 JF 08
Clear Head&Shoulders Pantene Els e ve Fructis Gliss Kur
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% Building leadership in dressings: changing the rules of the game
Dressings market shares in Russia
TOTAL UNILEVER 12.9
TOTAL BALTIMOR 10.4 TOTAL GK SOLNECHNYE PRODUKTY 8.7 TOTAL EFKO 8.6 TOTAL GK NIZHEGORODSKIY 8.6 TOTAL HEINZ-PETROSOUZ 7.5
TOTAL ESSEN PRODAKSHN 6.7 TOTAL SKIT 5.4 TOTAL KAZANSKIY ZHIROVOY K-T 5.0 TOTAL TORCHIN 0.9
02468101214
Nielsen Retail Audit data 24 Cities, MAT DJ 2008 Total Dressings = Mayo + Ketchup + MF Sauces + Salad Dressings + Hot Sauces + Mustard + Vinegar
Dressings: changing the rules of the game
First in the market to introduce Ketchup New Innovative Doy Pack Packaging in 1999 Packaging Introduction 2006
25 000
20 000 Tons
17000 15 000 14000 +54% ons T 10 000 11000 8000 5 000 5000 0 2000 1997 1998 1999 2000 2001 2002 2004 2005 2006 2007 Mayo sales in volume Ketchup sales in volume
Internal sales Dressings: changing the rules of the game
Developing the Light Mayonnaise Segment
Light Mayo Market (value)
Others Calve Light 36% 51%
MrRicco Light 13%
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:
¾ Building leadership in large categories
¾ Trading markets up, working the consumer pyramid
¾ Building capabilities as a competitive advantage
Do it all consistently: excellent execution Trading the tea market up: migrating to a more profitable segment
Value composition – urban Russian tea market
100%
80% 37.6 34.9 48.4 43.7
60%
40% 62.4 65.1 51.6 56.3 20%
0% 2005 2006 2007 DJ-FM 2008
Total Teabags Total Loose
Nielsen retail audit, urban Russia market
Beseda in the tea market: adding consumer value in the economy segment
Beseda: MAT turnover trend Jan 2007 – March 2008
Beseda Monthly Moving Average Trend
1 900.0
1 850.0
1 800.0
1 750.0
1 700.0
1 650.0 Turnover '000 Euros 1 600.0
1 550.0
1 500.0
1 450.0 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
* Source: Unilever shipment data Lipton in the tea market: launching premium pyramid tea bags (#1 in 2008)
Our growth strategy for Russia
Delivering sustainable value in Russia:
¾ Building leadership in large categories
¾ Trading markets up, working the consumer pyramid
¾ 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
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
Logistics Point of UL Key Accounts provider Purchase
Point of UL Distributor Modern Trade Retailer Purchase
General Trade/ Point of UL Distributor Open Markets retailer Purchase
Whole- General Trade/ Point of UL Distributor* saler Open Market retailer Purchase Win With Customers: Enhance focus and grip on execution
1. What are we trying Improved Business Performance to achieve? Market share and + CM investment TO growth efficiency 2.What?
Availability Quality of shelf Promotion Speed to shelf
Relevant On-shelf Share of Off shelf promo New items Assortment Availability category shelf execution introduction Listing of (pallets, OSA Must SKUs gondolas..)
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
Bryansk
Murmansk Saratov
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
100 90 •A local talent base: % 78 F 80 73 a 70 62 • 40% of Board is local v o 60 u 50 • A total of 10 expatriates, r 40 a of which 3 from CEE b 30 l 20 e 10 •A sound capability retain: 0 Employe Engagement Index • 2007 turnover rates below market average Unilever RUB External Overall Norm Best in Class Norm 100 % • Strong people surveys 90 F a 80 73 71 v 70 64 • As a result of: o 60 u 50 • In market success r 40 a 30 b 20 • Creative approach to l 10 e talent development 0 • Unilever reputation / Immediate Boss Effectiveness Index know-how 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 partnership with 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:
¾ Building leadership in large categories
¾ Trading markets up, working the consumer pyramid
¾ Building capabilities as a competitive advantage
Do it all consistently: excellent execution