Hul Market Watch

Company Spotlight MarketWatch: Global Round-up
Company Spotlight: Unilever

Unilever has said that David Simon, the company's vice-chairman and senior independent director,
will be retiring from the board at the annual general meetings in May 2009 having served three terms
of three years. Mr Simon will be succeeded in these positions by Jeroen van der Veer.
Mr Van der Veer will also replace Mr Simon as chairman of the nomination and remuneration committees.
Unilever has also said that it is also proposing that Louise Fresco, professor of international development and
sustainability at the University of Amsterdam, Ann Fudge, former chairperson and CEO of Young & Rubicam
Brands and Paul Walsh, CEO of Diageo, join the board as new non-executive directors. They will be
proposed for election to the board at the annual general meetings.
Michael Treschow, chairman of Unilever, said: "David Simon has made a tremendous contribution to Unilever
and his wisdom and wit will be greatly missed. At the same time I am extremely pleased that Jeroen van der
Veer has agreed to become vice-chairman and senior independent director."
Business background
Key facts Major products & services

Address Unilever House Personal care brands include:
100 Victoria Embankment
London EC4Y 0DY Lux
GBR Sunsilk
Website www.unilever.com Dove
Telephone 44 20 7822 5252 Rexona
Fax 44 20 7822 5951 Axe
Turnover (€m) 40,187 Pond's
Employees 174,000 Vaseline
Paris ticker UNA Lifebuoy
Financial year end December Signal
Unilever is one of the world's premier FMCG companies with a host of well known brands in the
foods, home and personal care categories. Unilever has two parent companies, Unilever N.V. and
Unilever PLC. Unilever N.V. is a public limited company registered in the Netherlands, while Unilever
PLC is a public limited company registered in England and Wales.
The two parent companies, Unilever N.V. and Unilever PLC, together with their group companies, operate as
a single economic entity, Unilever. Accordingly, the accounts of Unilever are presented by both Unilever N.V.
and Unilever PLC as their respective consolidated accounts.
Unilever markets its products under 400 brands in over 150 countries worldwide. In addition, the group
operates over 317 manufacturing sites across six continents. Unilever's products are sold through group-
owned sales force as well as through independent middlemen such as brokers, agents, and distributors under
various agreements. Its products are distributed through distribution centers, satellite warehouses, group-
operated facilities, and public storage depots. The customer purchases occur through departmental chains,
wholesalers, co-operatives, independent grocery stores, and various food service providers.
© Datamonitor, A p r i l 2 0 0 9 www.datamonitor.com
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The group's primary operating segment comprises of three geographic regions: Europe, The Americas and
Asia Africa. The European region includes operations in Western Europe. The Americas region includes
operations in North America and Latin America. The Asia-Africa region includes operations in the Middle East,
Africa, South Asia, South East Asia, North East Asia, Australasia, and Central and Eastern Europe.
Although Unilever's operations are managed on a geographical basis, the group manages its brands under
four categories: savory, dressings and spreads; ice cream and beverages; personal care; and home care.
These categories act as its principal product areas, as well as the secondary reporting segments of the group.
The savory, dressings and spreads segment includes products like soups, bouillons, sauces, snacks,
mayonnaise, salad dressings, olive oil, margarines and spreads, and cooking products such as liquid
margarines. Unilever's major brands in this segment includes: Knorr, Hellmann's, Becel/Flora (Healthy Heart),
Rama/Blue Band (Family Goodness), Calve, Wish-Bone, Amora, and Ragu.
The ice cream and beverages segment includes sales of ice cream, tea, weight management products, and
nutritionally enhanced staples sold in developing markets. Unilever's major brands in this segment includes
Cornetto; Magnum; Carte d'Or and Solero; Wall's; Kibon; Algida; Ola; Ben & Jerry's; Breyers; Klondike;
Popsicle; Lipton; Brooke Bond; PG Tips; Slim Fast; Annapurna and AdeS/Adez.
The personal care segment offers skin care and hair care products; deodorants and anti-perspirants; and oral
care products. The group's major brands in this segment include Dove, Lux, Rexona (including Sure and
Degree), Sunsilk (including Seda/Sedal), Axe, Pond's, Suave, Clear, Lifebuoy, Vaseline, Signal and Close Up.
Home care and other operations of the group include sales of home care products, such as laundry powders
and liquids, and a wide range of cleaning products. Unilever's global brands in this segment include Omo,
Surf, Comfort, Radiant, Skip, Snuggle, Cif, Domestos and Sun/Sunlight.
The group's operation also includes Unilever Foodsolutions, which is a global food service business providing
solutions for professional chefs and caterers.
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SWOT Analysis
SWOT Analysis
Strengths Weaknesses
Portfolio of global and regional brands Volatile financial market returns likely to
aggravate pension fund deficits
Diversified revenue streams Fluctuating cash flow from operations
Global scale of operation
Strong orientation towards Research and
Development process
Opportunities Threats
Focus on Developing and Emerging Economies Intense competition

Focus on core business activities Global economic slowdown
Organizational restructuring New regulations issued by FDA and European
Commission likely to impact operating margins
Extension of partnership with PepsiCo
Growing out of home eating market
Growing Indian FMCG market
Source: Datamonitor DATAMONITOR
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Strengths
Portfolio of global and regional brands
Unilever has an extensive portfolio of 400 strong brands spanning across 14 categories of home, personal
care and food products. Twelve of its brands have global turnover in excess of E1,000 million (approximately
$1,370.7 million). These are Knorr, Hellmann's, Lipton, Becel/Flora (Healthy Heart), Rama/Blue Band (Family
Goodness), Wall's/Algida (Heart brand), Omo, Surf, Dove, Lux, Rexona (including Sure and Degree) and
Sunsilk (including Seda and Sedal).
Unilever's brands are marketed in over 150 countries and many of them are global leaders in their respective
segments. In the food segment, Knorr is its biggest brand with a strong presence in over 80 countries. It is
Unilever's leading brand with annual sales of over E4,000 million (approximately $5,482.9 million). Unilever is
the world's largest ice cream manufacturer, and owns brands like Magnum, Cornetto, Carte d'Or and Solero,
and Ben & Jerry's and Breyers in the US.
Besides the global popularity of its brands, the group greatly benefits from its strong regional presence in key
markets. For instance, in the personal care segment, Unilever is one of the global leaders with popular brands
like Axe, Dove, Pond's, Lux, Sunsilk, Comfort and Domestos 5x. The group has a strong presence in
emerging markets such as the Middle East, Asia and Africa, with category leading position in certain markets.
For instance, Hindustan Unilever, Unilever's Indian subsidiary, is the leading players in the Indian market with
its brands like Fair and Lovely and Sunsilk.
The strong brands of Unilever increase brand recall and promote repeat purchases. Since Unilever operates
in an industry which is largely driven by customer perception of brands, a strong product portfolio comprising
well-established brands provides a distinct competitive advantage. It not only enhances the group's brand
equity but also helps it while opting for brand extensions and line extensions. Additionally, a strong and well
differentiated portfolio of global and regional brands positioned to meet the needs of its consumers across a
variety of price points, segments and channels, allows it to compete effectively in its key categories and
countries.
Diversified revenue streams
The group has diversified revenue streams, both in terms of its product portfolio and geographical reach.
Unilever generates revenues through four business segments: savory dressings and spreads; ice creams and
beverages; personal care; and home care and other operations. In 2007, savory, dressings and spreads
contributed 34.8% of total revenues; personal care (28.1%); ice cream and beverages (18.9%); and
homecare and other operations (18.2%).
Moreover, the group generates revenues from markets in over 150 countries. In 2007, the group reported
37.8% of its revenue from Europe; 33.4% from the Americas; and 28.7% from the Asian and African market.
A diversified product portfolio and revenue stream not only shields the group against an uncertain economic
climate in a specific market or demand fluctuations in certain product categories (by dispersing its business
risks), as well as enabling it to tap opportunities available in new as well as existing markets.
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Global scale of operation
Unilever has global scale, with operations in Europe, North America, Asia, the Pacific, Africa, the Middle East,
Turkey and Latin America. It is one of the leading FMCG companies in the world, operating 317
manufacturing facilities across six continents. Its products are sold under 400 brand names across 14
categories of home, personal care and food products. Unilever's products are chosen by customers at least
150 million times a day. In FY2007, it generated revenue of E40,187 million (approximately $55,085.9 million)
by selling its products in over 150 countries.
Unilever's global scale of operation has enabled it to achieve leadership positions, typically number one or
number two, across product categories in several markets. For example, in foods, it holds the global number
one position in savory and dressings, spreads, tea-based beverages and ice cream. In home care, it holds the
global number two position in laundry, with a number one position in many developing and emerging markets.
In personal care, it holds the global number one position in mass skin care and deodorants, and the number
two position in hair care. Moreover, global scale provides Unilever with cost advantages along with
operational efficiencies.
Strong orientation towards research and development process
Unilever has a strong orientation towards the research and development (R&D) process. In December 2008,
the group combined its R&D on foods, home and personal care, and corporate research into one research
organization.
For research, the group selected six sites: Vlaardingen Netherlands; Port Sunlight and Colworth, the UK;
Trumbull, the US; Bangalore, India; and Shanghai, China. For product design and deployment, its activities
are carried out in Englewood Cliffs, the US; Valinhos, Brazil; and Mexico City, Mexico. For global laundry,
R&D is consolidated in Vlaardingen, Netherlands; Port Sunlight, the UK; and Mumbai, India.
In 2007, Unilever spent over E868 million (approximately $1,189.8 million) on R&D activities. As a result, the
group was able to concentrate on bigger innovations and rolled them out faster around the world.
For instance, in 2007, the group launched Clear, a shampoo with superior antidandruff active delivery
technology, simultaneously in several countries, including China, Russia, and Brazil. Further, in December
2008, it launched Dove intensive range for extra dry skin. It would be available from January 2009, in the UK.
During the same month, Unilever also announced that it would release a new deodorant product (form of roll
on and spray) in the UK in 2009. The products are said to slow down the growth of underarm hairs, and make
them finer as well. A strong orientation towards R&D activities enables the group to launch new products
frequently and also introduce variants of existing products.
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Weaknesses
Volatile financial market returns likely to aggravate pension fund deficits
The overall value of Unilever's pension schemes both funded and unfunded—which include among others the
E7,400 million (approximately $10,143.5 million) UK scheme and the E4,000 million (approximately $5,482.9
million) Dutch scheme Progress—was E14,200 million (approximately $19,464.5 million) at the end of
September 2008. The overall funding position of Unilever's pension arrangements was little changed over the
first nine months of 2008, as the impact of higher IAS 19 discount rates (higher discount rates reduce pension
liabilities) largely outweighed falls in asset values (caused by underperformance of pension fund
investments). The asset value and IAS 19 value of liabilities both fell by E3,000 (approximately $4,112.3
million) during the first nine months of 2008 and the overall net liability for all arrangements was E1,100
million (approximately $1,507.8 million) at the end of the third quarter of 2008, the same as at the end of
2007. Going forward it is expected that IAS 19 discount rates will go down aggravating pension fund deficits
caused by falling asset values of pension fund investments.
Fluctuating cash flow from operations
The group has not been able to generate consistent cash from its operations during FY2005–07. It has
witnessed fluctuations in its cash from operations, registering a decline in every alternate year. Cash from
operations of the group increased from E4,353 million (approximately $5,966.8 million) in 2005 to E4,511
million (approximately $6183.4 million) in 2006. Again in 2007, it failed to reach E3,876 million (approximately
$5312.9 million). In FY2007, the main reason for decline in operating cash flow was due to higher cash
restructuring costs. Fluctuating cash flows from operations would make it difficult for the group to maintain its
working capital and dividend policies.
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Opportunities
Focus on Developing and Emerging Economies
The most significant growth opportunity for Unilever is in the Developing and Emerging (D&E) economies,
most notably China and India. D&E economies are expected to account for 90% of the world's population by
2010, and this is expected to drive demand for fast moving consumer goods.
Unilever has been active in D&E economies through its subsidiaries in Asia Pacific, Africa, the Middle East,
Turkey and Latin America region. These regions currently contribute approximately 44% to Unilever's
turnover. By 2010, Unilever expects to generate almost 50% of its revenue form D&E economies. Moreover,
in December 2008, the group also decided to shift a large chunk of its innovation and R&D resources to Asia
including India and China. The move is expected to create competitive global research centers in Asian
countries and help Unilever scale down research and development (R&D) costs significantly. This is to
augment its focus on growing its business in the D&E economies. In the future, Unilever's growth would be
driven by high growth D&E economies, as its mature markets become saturated and their growth continues to
remain stagnant.
Focus on core business activities
Unilever divested its interest in many of the non core business areas recently. For example, in November
2007, Unilever reached an agreement to sell its soft cheese brand Boursin to Le Groupe Bel month. In July
2008, Unilever announced that it expected to complete the sale of its Lawry's and Adolph's branded
seasoning blends and marinades business to McCormick & Company, Inc. In the same month, Unilever
signed a definitive agreement for the disposal of its Bertolli olive oil and vinegar business with Grupo SOS.
The transaction includes the sale of the Italian Maya, Dante, and San Giorgio olive oil and seed oil
businesses, as well as the factory at Inveruno, Italy.
In September 2008, Unilever completed the sale of its North American laundry business in the US, Canada
and Puerto Rico to Vestar Capital Partners (Vestar). In December 2008, Unilever sold its edible oil business
and oil palm plantations, Palmci and PHCI, in Cote d'Ivoire. The edible oils business and plantations interests
were sold to SIFCA and to a 50:50 joint venture between two Singapore-based companies, Wilmar
International Limited and Olam International Limited. These divestments are part of Unilever's previously
announced plans to dispose of non-strategic business operations.
This will enable the group to concentrate on activities such as research, innovation, sales and marketing, and
increase their energies on matters that directly affect their competitive positioning. This strategic action would
fulfill the group's aim of delivering consistent and competitive underlying sales growth of 3–5% per annum and
an operating margin improvement to a level in excess of 15% by 2010.
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Organizational restructuring
In order to tackle mounting operational costs, adverse exchange rates, and recessionary trends in the US and
Europe, the group announced steps to improve its performance in 2008. In February 2008, Unilever decided
on streamlining its management structure in keeping with its strategy of focusing on developing markets and
promoting executives with experience in those territories. It's Central and Eastern Europe segment was
included in an enlarged Asia, Africa and Central and Eastern Europe unit, thus centralizing management of
emerging economies that shared similar consumer traits and potential for growth. The group also decided to
reduce 20,000 jobs across its segments and combine its Home and Personal Care and Foods into a single
category structure. The group also decided to shift a large chunk of its innovation and research and
development (R&D) resources to Asia including India and China.
Earlier, the group had taken similar initiatives in 2000, by announcing a five-year growth strategy called 'Path
to Growth', directed towards bringing a significant improvement in its performance. In 2001, the 'Path to
Growth' strategy had led to organizational restructuring in the form of two global segments being formed: one
for foods, and one for home and personal care.
Initiatives taken by the group earlier have helped it to grow. It is further expected that the group's new plans
will help it to raise its profitability by becoming leaner and more agile.
Extension of partnership with PepsiCo
PepsiCo and Unilever expanded their international partnership for the marketing and distribution of ready-to-
drink tea products under the Lipton brand, in January 2008.
The new agreement builds on the original 1991 Pepsi Lipton Tea Partnership (PLTP) North American joint
venture that established Lipton as the leading ready-to-drink tea brand in the US, and on the subsequent
2003 Pepsi Lipton International (PLI) joint venture that spans more than 40 countries. The new agreement
adds 11 countries to the partnership's existing Lipton ready-to-drink tea business, eight in Europe (Germany,
Italy, France, Netherlands, Switzerland, Austria, Belgium and Portugal) as well as Korea, Taiwan and South
Africa.
Over the next several years, the nonalcoholic- ready-to-drink beverage industry is expected to grow faster
than the world's GDP and reach $650 billion dollar. In fact, nonalcoholic beverages are expected to grow
faster than cosmetics, alcoholic beverages, packaged foods and household care.
This partnership would leverages complementary strengths of Unilever's Lipton brand and tea know-how with
Pepsi bottling and distribution network. The new agreement positions both companies to capture more of the
growth opportunities associated with the rapidly expanding global ready-to-drink tea market.
Growing out of home eating market
The global food-service industry is worth over E350 billion (approximately $479.8 billion) and is growing
rapidly as people around the world eat out more than ever before. In the US, more than half of food
expenditure now happens outside the home. In Europe, this figure is as high as one third and, in Hong Kong,
2.5 meals out of every three are eaten away from home.
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Unilever Foodsolutions, a food service business of Unilever, operates in 65 countries worldwide. The Unilever
Foodsolutions umbrella is home to global Unilever Foods brands like Knorr, Hellmann's, Lipton, Heart, Slim-
Fast, Becel and Flora.
Unilever Foodsolutions is also focused on canteens and quick-service restaurants. It started to work with
quick-service restaurants by enabling them to provide healthier options for consumers, such as Hellmann's
Extra Light Mayonnaise and Becel portions. Therefore, the group with its Unilever Foodsolutions business is
well positioned to tap the global growing out of home eating market.
Growing Indian FMCG market
The Indian Fast Moving Consumer Goods (FMCG) industry is likely to witness strong growth in the future. It is
poised to achieve a 16% growth in sales during 2008-09, compared to 14.5% in 2007-08, according to a
survey by the Federation of Indian Chambers of Commerce and Industry. The growth would be attributable to
the rising income and increasing demand. The survey points that consumers' preferences for FMCGs are
shifting towards higher lifestyle categories like skin care, shampoos, deodorants, anti-aging solutions, fairness
products and men's products in particular.
Unilever is present in India through its subsidiary Hindustan Unilever (HUL). HUL is India's largest FMCG
company. HUL's brands are spread across 20 distinct consumer categories. In terms of market share, HUL
commands number one position in products like fabric wash, dishwash, personal wash, shampoo, talcum
powder, packet tea, coffee, and jams. Unilever could thus leverage its strong presence to exploit the growing
FMCG market in India and enhance its profitability.
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Threats
Intense competition
Unilever operates in the fiercely competitive personal care and home care markets. For example, in mature
markets such as the US, France, Germany and the UK, hair care sales are suffering stagnation due to heavy
competition, and manufacturers will need to offer value-added attributes in order to gain share. Declining
prices, coupled with rising demand for discounts from the trade partners, is putting pressure on margins. In
some emerging markets, Unilever is losing the price-advantage it once enjoyed in home and personal care
products to companies such as Reckitt & Benckiser and Procter & Gamble. In the foods segment, Unilever
faces stiff competition from Nestle and Groupe Danone in its key markets. Nestle is one of the leading
producers of food products in North America and Europe, both key markets for Unilever. Nestle's enlarged
Dreyers (ice cream) business poses a serious threat to Unilever's share in the ice cream market. The group
also faces competition from other major players such as Johnson & Johnson, Colgate Palmolive, L'Oreal,
Shiseido, Beiersdorf, Kao Corporation and Clorox. Increasing competition could adversely affect Unilever's
market share and margins.
Global economic slowdown
The global Gross Domestic Product (GDP) is expected to increase marginally by 0.9% in 2009, according to
the World Bank's report 'Global Economic Prospects 2009'. According to the report, the economic growth rate
in developing countries is expected to decline from 7.9% in 2007 to 4.5% in 2009, while the growth in
developed countries is likely to be negative, in 2009.
The current economic climate is forcing shoppers to watch their expense and look for cheaper options of
discounted brands or own label merchandise. This is leading to discounters like Aldi, Lidl and Netto taking an
increasing proportion of the market from the major supermarkets and stores, which has a direct effect on
sales of the major brands. What is making the situation worse for branded goods suppliers like Unilever is the
pressure that big retail chains like Tesco have been putting on them recently. These big retailers, for
sustaining their revenue growths and margins, are promoting their own-labels.
The dent in disposable income of consumers caused by the global economic slowdown is making it
increasingly difficult for branded product manufacturers like Unilever to maintain their sales volume and
revenue growth.
New regulations issued by FDA and European Commission likely to impact operating margins
Several consumer protection groups are voicing concerns over the presence of harmful chemical ingredients
in cosmetic products. A recent study showed that about one-third of cosmetic products contain carcinogens.
Due to increasing public pressure, the US Food and Drug Administration (FDA) are expected to impose
stringent quality norms on cosmetic products. New regulations may delay launch of new products and result
in higher product development expenditure. At the European Union level, the European Commission has
published a draft regulation for the Registration, Evaluation and Authorization of Chemicals (REACH), along
with restrictions applicable to the chemical substances, and has set up a European Chemicals Agency.
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REACH focuses on the 30,000 chemical substances introduced into the market before 1981 and
manufactured or imported in quantities of more than one ton per year, on which hazard information has not
been sufficiently well examined by the current system. REACH, which came into effect recently, could impose
new liabilities or increase operating expenses, either of which could result in a decline in profitability.
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Company Spotlight MarketWatch: Global Round-up

Company Spotlight: Unilever

Key facts Major products & services

Focus on Developing and Emerging Economies Intense competition

Source: Datamonitor DATAMONITOR

Portfolio of global and regional brands

Diversified revenue streams

Global scale of operation

Strong orientation towards research and development process

Volatile financial market returns likely to aggravate pension fund deficits

Fluctuating cash flow from operations

Focus on Developing and Emerging Economies

Focus on core business activities

Extension of partnership with PepsiCo

Growing out of home eating market

Growing Indian FMCG market

Global economic slowdown

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