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Accelerating changeUnilever China

Outpacing the market

Frank BraekenGroup Vice President China, Hong Kong and Taiwan

Morgan Stanley

Investor Field Trip

Beijing

12 March 2008

• Unilever China: the context

• The opportunity

• The challenges and our responses

• The outcome

• Unilever China: the context

• The opportunity

• The challenges and our responses

• The outcome

Local roots Global scale

Local roots with global scale

Unilever’s strategic priorities

PersonalCare

Developing & Emerging

Markets (D&E)

Vitality

D&E: a major driver of Unilever’s growth

Western Europe38%

North America

23%D&E36%

% 2004 Sales % 2007 Sales

D&E44%

North America

21%

Western Europe32%

D&E underlying sales growth c. 8% p.a. since early 1990s

Other developed 3%

Other developed 3%

D&E growth is profitable

Developed D&E D&E excl.Russia & China

2007 Operating margin before RDIs*

Unileveraverage

*Restructuring, Disposals, One-off Items

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

Lever Brothers entered China in 1923

Unilever returned to China in 1986

Unilever and China -A long history

Investing to win in China

• Priority status: 5 year growth plan

• ‘One Unilever’ organisation

• New leadership team

• Increased innovation capability in Shanghai (+100 FTEs)

• Step-up in marketing investment

• Priority allocation of talent

Doubling the China business in 3 years

2004 2005 2006 2007

Unilever sales in ChinaUS$ 1 bn

US$ 0.5 bn

Unilever China by Category

Skin16%

Laundry22%

Spreads1%

Dressings3%

Savoury12%

Tea5%

Ice Cream10%

Hair19%

Oral12%

Based on 2007 turnover

• Unilever China: the context

• The opportunity

• The challenges and our responses

• The outcome

* Source: AC Nielsen# Source: Unilever estimates

The size of the prize

0123456789

10

2007* 2010#

Mar

ket s

ize

US

$ bn

Ice creamTeaSavouryFabric cleaningOralPersonal washFaceHair+0.4bn

+0.6bn

+0.1bn

+0.3bn

+0.3bn

+0.1bn

Source: AC Nielsen

HPC market still consolidating

Skin cleansing OralHair

Fabric cleaning Face care

UnileverGlobal

competitors

Localcompetitors

Others

Q. If you were buying from your usual store and the brand is not available, would you…?”

The race is still open -Brand loyalty

5 5 6 11 7 6 9 6

70 71 71 57 69 72

38

71

15 14 13 2116 12

47

12

10 10 11 11 8 10 6 11

Soft dr

inks

Ice cr

eam

Biscuit

sSha

mpoo

Deterge

nt

Snack

sCiga

rette

sIns

tant n

oodle

s

Look for the same brand but choose something different.Buy the same brand at another storeBuy an alternative brandWait until it was available

• Unilever China: the context• The opportunity • The challenges and our responses

- Understanding the Chinese consumer- Connecting with the Chinese consumer- Sustainable expansion of distribution- Building a world class supply chain- Managing complexity- War for talent

• The outcome

Source: Retail Audit Data

Key success factors

• Integrated support plan• Superior product performance

• Sharp brand position• Deep consumer understanding

Unmet consumer need

• 70 % of Chinese have dandruff concerns• Professional AD shampoos account for only 18% of the market

• 40 % of users are not satisfied with the current offering• AD needs are same cross gender.

• There is no AD brand speaking to me in my language.

Case study - Clear anti-dandruff

Bus shelterOffice LCDMetro

Airport Billboard Bus body

Magazine

Road-show

Flagship store wrap

up

Launch conference

Symposium

SamplingISA

Advertising

Promotion

Clear brand activation

Clear - Market progress

Source: Retail Audit Data

Value market share

01234567

Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan

Weighted

distribution: 43% 51% 53% 55%

Share in handler

Total share

%

Consumer insights:

• 99.9% of all soup consumption in China is in-home

• Knorr Thick Soup Treasure produces the taste and nutrition of thick soup in instant soup time.

Case study –Knorr convenient thick soup

Fact File

TV Penetration 96%TV Stations 302Satellite TV Channels 94Cable TV Channels 663Cable Subscribers 128m

• 4 MUNICIPALITIES• 23 PROVINCES• 2 ADMIN REGIONS • 5 AUTON. ZONES• 259 CITIES• 400 COUNTY CITIES

660+ DIFFERENT MARKETS

LOCAL APPROACH

PROVINCIALAPPROACH

NATIONALAPPROACH

• Highly complex media environment segmented nationally, provincially and locally (660 discrete markets)

• Top 10 TV stations account for 30% of national audience

Source: ACNielsen Media Monitoring

Challenge –Connect with the Chinese consumer

Response –Micromarketing

The ‘Heat cube’ –Prioritisation across geography, category and channel

1 2 3 41 2 3 4

Category

Cha

nnel

sGeo

graph

y

Source:A.C. Nielsen / CSM 2006

OMOOMO

HuB

HLJ

JL

LN

SD

HN

GXYN

XZ

XJ

QH

CQHuN

GuZJX

AHHeN

SX

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NM

TJNX

JSSH

FJ

GD

SC

BJ

ZJ

TW

CD

Competitor

HuB

HLJ

JL

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SD

HN

GXYN

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AHHeN

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BJ

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CD

Micromarketing –Laundry

High SOV: >30%

Medium SOV: 20-30%

Low SOV < 20%

ZhonghuaZhonghua CrestCrestHLJ

JL

LN

SD

HN

GXYN

XZ

XJ

QH

CQHuN

GuZJX

AHHeN

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TJHeBNX

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BJ

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CDHuB

HLJ

JLLN

SD

HN

GXYN

XZ

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CQHuN

GuZJX

AHHeN

SX

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NM

TJHeBNX

JSSH

FJ

GD

SC

BJ

ZJ

TW

CDHuB

HLJ

JL

LN

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HN

GXYN

XZ

XJ

QH

CQHuN

GuZJX

AHHeN

SX

SaX

GS

NM

TJHeBNX

JSSH

FJ

GD

SC

BJ

ZJ

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CDHuB

HLJ

JLLN

SD

HN

GXYN

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CQHuN

GuZJX

AHHeN

SX

SaX

GS

NM

TJHeBNX

JSSH

FJ

GD

SC

BJ

ZJ

TW

CDHuB

Zhonghua

Micromarketing –Oral

Competitor

High SOV: >30%

Medium SOV: 20-30%

Low SOV < 20% Source:A.C. Nielsen / CSM 2006

Micromarketing –Lux body wash in South China

Opportunity• Guang Dong Province is the largest

shower gel market

Objectives• Grow turnover +50%• Increase market share >6%

Expansion plan• Increase share of voice• Expand media footprint• Continuous promotion schemes to

drive consumer uptake• Increase in-store visibility

In 200 stores110% increase in uptake

60% sales growth8% market share *

*Source: AC Nielsen

Outcome

Challenge –Sustainable expansion of distribution

• Sustainability • Balance trade push and

consumer pull

• Scale sufficient to make

distribution viable

• Strength of relationship with route to market partners

• Capability build

2 ndScale up

UNILEVER FIELD CAPABILITY

OPTIMIZEDCOVERAGE

STABILIZED CONTROLLEDDISTRIBUTION

ENHANCEDOPERATIONS

2010

2007

UNILEVER FIELD CAPABILITY

Response –Implementing best practice distribution model

WORLDCLASS

1 stScale up

Challenge –Building a world class supply chain

Manufacturinglocations

1997 16

2007 7

Xinjiang

Xizang

Qinghai

InnerMongolia

Gansu

Yunnan

Guizhou

Hainan

Shandong

Hebei

Fujian

Guangxi

Zhejiang

Jiangsu

Liaoning

Jilin

Heilongjiang

Shanxi

Henan

Hubei

Shaanxi

HunanJiangxi

Guangdong

Sichuan

Anhui

Tianjin

Shanghai

Beijing

Ningxia

Chongqing

Current manufacturing location

Closed since 1997

Conversion cost reductionLaundry Powder

Conversion Cost per Ton

Personal Wash Liquids

Conversion Cost per Ton

Y00 Y02 Y04 Y06 Y08Est

15Y00 Y02 Y04 Y06 Y08

Est.

Challenge –Managing complexity

From (1997) To (2007)

10 joint ventures

13 business units

29 senior executives

1 wholly owned business

1 operating unit for Foods, Ice Cream and HPC

Simplified management structure led by 12 senior executives

• Source: Hewitt Salary survey 2006

Challenge –War for talent

13.9%

10.2%

14.9%

5%

7%

9%

11%

13%

15%

17%

2003 2004 2005 2006

Employee turnover rate

Unilever

All industries

FMCG

• Correct leadership objectives

• Developing Asian leaders

• Simplification

• De-layering

• Stimulating environment

Response –A rewarding Vitality environment

• Unilever China: the context

• The opportunity

• The challenges and our responses

• The outcome

A Unilever growth engine with sustainable 20% growth momentum

The outcome

Accelerating changeUnilever China

Outpacing the market Mumbai

14th November 2007