Increasing Competitiveness Prudential Back to School Conference, Boston September 8, 2005 Rudy Markham Ralph Kugler Chief Financial President, Home and Officer Personal Care 0 Rudy Markham Chief Financial Officer Good morning, ladies and gentlemen. I am pleased to be here in Boston, presenting at one of the year’s major investor events. Since Unilever was last here, two years ago, our performance has disappointed but I am glad to be able to say that we have begun to put this right. Indeed, while it is still early days, the first encouraging signs of progress are evident in the first half year results. I am not going to repeat the detailed description of the areas where we needed to increase our competitiveness, which we went into at some length at the start of this year. The simple fact was that we had started to lose market share. While the share losses were small, they were an indication of the need for action. So in September last year we drew a line in the sand and changed the priorities for the remainder of the year to support growth. This was followed by the announcement of a simplification of our organisation structure, capitalising on the simpler business that we have created over the past 5 years. With me today is my Board colleague, Ralph Kugler, President of Home and Personal Care, who sits with me on the new executive team. Ralph will tell you about how we are changing and how this will translate into improved market place performance. 1 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. 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. 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. As usual, we will take the safe harbour statement shown here as read – it is included in the slides to this presentation which are available on our web site. I have said that over the past 5 years we have created a simpler business, so let’s first take a look at what this means. 2 Unilever’s Strong Portfolio Unilever’s World Category Positions Our $1bn brands Savoury & Dressings Spreads Weight Management Tea Ice Cream Frozen Foods #1 in Europe Laundry #1 in D&E Household Care Focus on 2 brands Daily Hair Care #1 in D&E Skin Deodorants Focus on country Number 1 Oral Care strongholds Number 2 Number 3 or less Source: Euromonitor, Unilever estimates We operate in 12 categories. We are global leaders in 7 of these, while in 3 of the others we have leading positions in our main markets. We manage these categories through a portfolio of brands which is now much more focussed. We have some 200+ brand positions - a huge reduction on 5 years ago. These include global brands, like Dove, Lux, Lipton and Hellmann’s and local jewels, like Suave here in the US. 13 of these brands have sales of over 1 billion dollars. 3 Scale and Geographic Reach 2004 Turnover: € 39.1 billion, US$48.4 billion Europe: 43% The Americas: 32% Asia/Africa: 25% 35% in Developing and Emerging markets (all countries except W Europe, US, Canada, Australia & Japan) Total sales last year were close to 50 billion dollars. We have a very broad reach across the developed world. In the US alone we now have a business of some 10 billion dollars and are starting to use that scale by going to market as one company for the first time. But probably the most striking feature is that a little over 35% of our business, or 17 billion dollars of sales, is in developing and emerging markets. The purchasing power of these countries continues to grow and indeed is expected to overtake that of the developed countries for the first time next year. By 2010, nearly 90% of the world’s population will be located there. We have been established in most of these markets for a long time – in a number of cases for over 70 years. From a strong base, our sales here have grown organically at an average of about 8% p.a. over the last 15 years – and did so again in the first half of 2005 – equivalent to well over a billion dollars of additional annual sales. It is also profitable growth, with an average operating margin of around 14%. Overall, then, a strong portfolio of brands with excellent scale and geographic reach - but we hadn’t been delivering the top line growth we knew Unilever was capable of. 4 2005 Priorities z Regain momentum in Western Europe z Drive successes harder - Build on strengths in Developing & Emerging markets - Build on strengths in Personal Care - Key Vitality launches z Cost savings to help fund increased competitiveness z Implement new organisation and keep market focus So these were the priorities we set out at the beginning of this year. Starting with Western Europe. This was the major drag on growth in 2004 and we are determined to regain momentum there. 5 2005 Priorities z Regain momentum in Western Europe z Drive successes harder - Build on strengths in Developing & Emerging markets - Build on strengths in Personal Care - Key Vitality launches z Cost savings to help fund increased competitiveness z Implement new organisation and keep market focus Markets across Western Europe are broadly flat. After a few years of weak economic growth consumers are more value conscious than ever. This does not mean they do not want brands – but they do want value for their money. They are as attracted as ever to brands that can meet their individual aspirations with added functional benefits and provide an emotional connection. But….these must be convincing and worth the price, otherwise they will buy a private label product instead. This has proved fertile ground for the growth of hard discounters, particularly in countries where there has not been a strong value focus from established national retailers. Thus in Germany hard discounters now have a market share of about 40%. By contrast, in the UK their share has been held to only 5%, at least in part because the major established chains, and Tesco in particular, have played a greater role in emphasising value for money – in a way perhaps similar to the role that Wal.Mart plays in the US. The major retail chains have clearly recognised the threat from hard discounters and have been responding. Indeed, it is largely this which has held back pricing and thus overall growth in Western Europe over the past couple of years. Against this background, we are placing increased emphasis on understanding the different ways that shoppers, our consumers, choose to make their purchases so that we can tailor our offerings accordingly. This helps us to work with both the established retailers and with discounters, who are each looking to define their own unique market positioning. We can help them do this with in-store brand activation designed to their needs and in some cases with specific product formats. Beyond this, we are increasing our competitiveness to ensure that our brands do offer real value. This is a more general theme for us. 6 Increasing Competitiveness Innovation Winning With Customers Marketing Pricing Investment Improvement in market share trend This chart shows the 4 key elements of competitiveness: Innovation, winning with customers – by which we mean retailers, marketing investment and pricing. Importantly these elements must all work together to drive market share. It is rare that the answer to a struggling brand’s problems is simply to cut the price. Similarly, a great innovation can be lost without the supportive partnership of retailers. And simply throwing money into the market in the form of advertising is not in itself the route to profitable growth. There are plenty of great examples in Unilever when these elements do all come together in a winning formula. We know how to do it. But there have also been a number of cases where we have not executed well enough across all of them. We have also not always been quick enough to recognise a successful innovation in one part of the world and build on it elsewhere. This has been true in both Foods and Home and Personal Care, from heart health margarines to hair care. So the next key priority is to drive our successes harder. 7 2005 Priorities z Regain momentum in Western Europe z Drive successes harder - Build on strengths in Developing & Emerging markets - Build on strengths in Personal Care - Key Vitality launches z Cost savings to help fund increased competitiveness z Implement new organisation and keep market focus Firstly in developing and emerging markets, to capitalise on the strong base there, from Brazil to South Africa all the way to India and Indonesia. Again, it is the combination of excellent innovation and brand activation which is the key. Secondly, in Personal Care. We have grown over many years in high single digits.