Personal Care MarketWatch

COMPANY SPOTLIGHT: UNILEVER

Unilever announces sustainable sourcing of paper packaging

Unilever has published its sustainable paper and board packaging sourcing policy as part of its strategy to double the size
of the business while reducing its environmental impact.

The policy outlines the company's goal to work with its suppliers to source 75% of its paper and board packaging from
sustainably managed forests or from recycled material by 2015, rising to 100% by 2020.

Marc Engel, chief procurement officer of Unilever, said: "As a leading consumer goods company, we buy considerable
quantities of paper and board for packaging to ensure our products are protected and transported safely. As such it is
important that we promote sustainable forestry practices and help combat deforestation and climate change through the
responsible sourcing of these materials.

"We are committed to working in partnership with all of our suppliers to progressively increase the proportion of paper and
board packaging which comes from recycled materials or sustainably managed forests, in order to achieve this ambitious
target."

Business description
Unilever* is one of the world's premier fast moving consumer goods (FMCG) companies, with a host of well known brands
in the foods, home and personal care categories. The group sells its products through distribution centers, satellite
warehouses, group-operated facilities, and public storage depots. Products are marketed under 400 brands spanning 14
categories of home, personal care and food products in over 170 countries worldwide. In addition, the group operates over
264 manufacturing sites across six continents.

The group's primary operating segment comprises three geographic regions: Asia Africa; Central and Eastern Europe; The
Americas and Western Europe. Although Unilever's operations are managed on a geographical basis, the group classes its
products under four categories: savory, dressings and spreads; ice cream and beverages; personal care; and home care
and others. 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 such as 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 include Knorr, Hellmann's, Becel/Flora (Healthy Heart), Rama/Blue Band (Family Goodness), Calve,
Wish-Bone, Amora, Ragu and Bertolli.

The ice cream and beverages segment includes ice cream, tea, weight management products and nutritionally enhanced
staples sold in developing markets. Unilever's major brands in this segment include Cornetto, Magnum, Carte d'Or, Solero,
Wall's, Kibon, Algida, Ola, Ben & Jerry's, Breyers, Klondike, Popsicle, Lipton, Brooke Bond, PG Tips, Slim Fast, Annapurna
and AdeS/Adez.

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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.

The group's home care and other operations include sales of home care products such as laundry tablets, powders and
liquids, soap bars 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 other operation also includes Unilever
Foodsolutions, a global food service business providing solutions for professional chefs and caterers.

* 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.

Table 2: Key facts

Address Unilever House Brands include

100 Victoria Embankment Lux
London EC4Y 0DY Sunsilk
GBR Dove
Telephone 44 20 7822 5252 Pond's
Fax 44 20 7822 5951 Vaseline
Website www.unilever.com Signal
Stock exchange ticker UL (New York ticker)
Employees 163,000
Turnover € 39,823m
Financial year end December

Source: Datamonitor DATAMONITOR

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SWOT analysis

Table 3: Swot analysis

Strengths Opportunities
Diversified revenue streams Focus on developing and emerging economies
Large scale of operations Divesture of non-core business activities
Strong portfolio of brands Expanding in the out-of-home eating market
Strong focus on R&D activities

Focus on sustainability

Weaknesses Threats
Weak liquidity position Dampened consumer demand
Unfunded employee post-retirement benefits Intense competition
Weak performance in Western Europe Government regulations

Source: Datamonitor DATAMONITOR

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Strengths

Diversified revenue streams

The group has diversified revenue streams, both in terms of its product portfolio and geographical reach. Unilever
generates revenues through four product categories: savory dressings and spreads; ice creams and beverages; personal
care; and home care and other operations. In FY2009, savory, dressings and spreads contributed 33.3% of total revenues,
personal care contributed 29.7%, ice cream and beverages contributed 19.5%, and homecare and other operations
generated 17.5%.

Moreover, the group generates revenues from markets in over 170 countries. In FY2009, the group reported 15.9% of its
revenue from the US, 8.5% from the Netherlands/United Kingdom, 49.0% from emerging markets such as Brazil, India,
Indonesia, Turkey, South Africa, China, Mexico and Russia, and the remaining 26.6% from all other countries across the
world. A diversified product portfolio and revenue stream not only shields the group against uncertain economic climates in
a specific market or demand fluctuations in certain product categories (by dispersing its business risks), but also enables it
to tap opportunities available in new as well as existing markets.

Large scale of operations

Unilever operates a large scale of operations. It is a leading FMCG company which oversees 270 manufacturing facilities
across six continents, and its products are sold under 400 brand names across 14 categories of home, personal care and
food products. Unilever's global scale of operations 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.

Furthermore, the company is dependent on regional and global supply chains for the procurement of raw materials and for
the manufacture, distribution and delivery of its products. Following different supply chain methods depending upon the
situation would provide the company with economies of scale. Moreover, the extent of operations provides Unilever with
cost advantages and operational efficiencies.

Strong portfolio of brands

Unilever has an extensive portfolio of 400 strong brands spanning across 14 categories of home, personal care and food
products. 13 of its brands have accounted for a global turnover in excess of €23,000m ($32,076.5m). These are Axe/Lynx,
Blue Band, Dove, Flora/Becel, Heartbrand, Hellmann's, Knorr, Lipton, Lux, Omo, Rexona, Sunsilk and Surf. Furthermore,
the top 25 brands account for over 70% of the group's total sales.

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Most of Unilever's brands 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 €3,000m ($4,414m).
Unilever is also the world's largest ice cream manufacturer, and owns brands such as Magnum, Cornetto, Carte d'Or and
Solero, and Ben & Jerry's and Breyers in the US. The brand strength of the company is vindicated by the fact that more
than two billion consumers worldwide use the company's products on a daily basis. Unilever is also the second biggest
advertiser in the world. A strong portfolio of well established brands which are positioned to meet the needs of its
consumers across a variety of price points, allows the company to compete effectively in its key categories and countries.

Strong focus on research and development activities

Unilever invests strongly in the research and development (R&D) process of its products, which is an essential component
of the company's strategy. Total R&D expenditure stood at €891m (approximately $1,242.6m), and €927m (approximately
$1,292.8m) for the financial year 2009 and 2008 respectively. The group spent around 2.3% of its revenue on R&D in the
period 2004–09. As a result, the group was able to concentrate on bigger innovations and rolled them out faster around the
world. For instance, in 2009, the group launched Dove Minimising Deodorant in 37 markets; Signal White Now in 21
markets and Knorr Stockpots in 12 markets; Clear shampoo is now in 35 markets. In the same year, Unilever also released
a new deodorant product (a combination of roll-on and spray) in the UK. A strong orientation towards R&D activities
enables the group to launch new products frequently and also to introduce variants of existing products.

Focus on sustainability

Unilever maintains a strong focus on sustainability issues, which has helped the group to maintain its sector leading
position on the Dow Jones Sustainability Indexes for the last 11 years. The group has been reducing the environmental
impact of its own factories and supporting its agricultural suppliers. For instance by 2008, Unilever achieved a 41%
reduction in carbon dioxide emission from its factories compared to 1995.

The group sources all its key agricultural raw materials (which form 50% of its raw materials) on a sustainable basis.
Through its Sustainable Agriculture Program, the group plans to cover criteria such as reducing fertilizer and pesticide use,
conserving water, promoting biodiversity and using less energy. Unilever also started using palm oil in both food and home
and personal care products. For this, Unilever has already purchased GreenPalm certificates covering 185,000 tons of
palm oil, accounting for around 15% of its total needs. The strong focus on environmental issues will foster strong
relationships with its suppliers and also improves its brand image.

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Weaknesses

Weak liquidity position

The group recorded a weak liquidity position in the previous financial year. For FY2009, the group's current assets stood at
€10,811m ($15,077.4m) as compared to the current liabilities of €11,599m ($16,176.3m). This resulted in a current asset
ratio of 93.2%, indicating less amount of resource to cover its short-term liabilities. Moreover, the group's cash and cash
equivalents stood at €2,642m ($3,684.6m), which is sufficient to cover only its short-term borrowings of €2,279m
($3,178.4m), leaving no funds for other working capital needs. Furthermore, the majority of the group's current assets are
tied up in inventories and current receivables. These constitute 70% of total current assets, which will take comparatively
longer to liquidate. This all indicates that the group's liquidity position is significantly weak, which could result in improper
working capital management and may negatively impact the group's operational efficiency and growth initiatives.

Unfunded employee post-retirement benefits

The group provides pension benefits and other post-retirement health and life insurance benefits to employees. During
FY2009, the group incurred a total of €1,204m ($1,679.1m) for pension and post-retirement benefit expenses. The group
also paid a total of €1,367m (approximately $1,906.5m) for pension and post retirement benefit plans during FY2008.

At the end of December 2009, the group's projected pension and post-retirement benefit obligations stood at €16,995m
($23,701.7m) as compared to the planned assets of €14,413m (approximately $20,100m), resulting in an unfunded status
of €2,582m (approximately $3,600.9m). This represents 77% of the group's net profit in FY2009. Sizeable unfunded post-
retirement benefits will force the group to make periodic cash contributions towards bridging the gap, which would reduce
the funds available for growth plans.

Weak performance in Western Europe

Unilever has registered a weak performance in Western Europe, with revenues and operating profit showing a significant
decline in the previous financial year. In FY2009, revenues from Western Europe declined at a rate of 6.1% to reach
€12,076m ($16,841.6m). The operating profit also declined significantly, by 50.4% from €2,521m ($3,515.9m) in 2008 to
€1,250m ($1,743.3m) in 2009. This is in spite of significant income received from business disposals in 2008. The
underlying performance of the group in Western Europe could put additional pressure on its performance in other regions.

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Opportunities

Focus on developing and emerging economies

Unilever has been active within developing and emerging economies through its subsidiaries in Asia Pacific, Africa, the
Middle East, Turkey, and Latin America. These regions contributed to approximately 49% of Unilever's turnover in 2009,
and the group expects to increase its revenue form these economies. In 2008, the group 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, to expand its business operations in developing economies.

Developing and emerging economies are forecast to account for 90% of the world's population by 2010, and this is
expected to drive demand for FMCGs. For instance, the Indian FMCG sector is expected to grow four-fold from $25 billion
sales in 2008 to $95 billion by 2018. The growth would be attributable to the population's rising income and increasing
demand. Similarly, the Chinese FMCG market is also expected to grow at a rate of 15% a year in the next five-year period
(2009-13). With a strong presence and leadership position across these markets, Unilever could exploit the growing market
conditions.

Divesture of non-core business activities

Unilever has divested its interest in many of the non-core business areas. For example, in December 2008, Unilever sold
its edible oil business and oil palm plantations, Palmci and PHCI, in Cote d'Ivoire. These divestments are part of Unilever's
plans to dispose of non-strategic business operations. Furthermore, in October 2009 the group announced the reduction of
its equity interest in JohnsonDiversey (a leading provider of commercial cleaning, sanitation and hygiene solutions) from
33% to 4%. In December 2009, Unilever sold its media planning and buying business for Greater China to PHD, part of the
Omnicom Media Group.

With the proceeds of these divestments, the group plans to increase its focus on the consumer business. Furthermore, the
divesture of non-core businesses will enable the group to concentrate on activities such as research, innovation, sales and
marketing, maintaining focus on matters that directly affect the company's competitive positioning. This strategic action will
fulfill the group's aim of delivering consistent and competitive sales growth and improving its operating margins.

Expanding in the out-of-home eating market

The global food services industry is expected to register strong growth by 2015, reaching an estimated $2.2 trillion in
revenues. This is primarily due to the growth of the food market outside of the home. 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.

Unilever Foodsolutions, a food services branches of Unilever, operates in 65 countries worldwide. The Unilever
Foodsolutions umbrella is home to global Unilever Foods brands such as Knorr, Hellmann's, Lipton, Heart, Slim-Fast, Becel
and Flora. Unilever Foodsolutions is also focusing 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 out-of-home eating market.

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Threats

Dampened consumer demand

Unilever's business is dependent on sustained consumer demand for its products and brands, which was adversely
impacted by the global downturn. The current economic climate is forcing shoppers to watch their expensed and look for
cheaper options in 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.

Furthermore, branded goods suppliers such as Unilever are facing pressure from big retail chains like Tesco. These
retailers, in order to sustain revenue growth and profit margins, are promoting their own-label brands. Although the
organization is working hard to handle all these external pressures, reduced consumer spending across the regions will
affect its performance. Moreover, the dent in the disposable income of consumers is making it increasingly difficult for
branded product manufacturers like Unilever to maintain their sales volume and revenue growth.

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 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 two other key markets including India and Spain, the company faced intense competition from low-cost local
competitors.

In the foods segment, Unilever faces stiff competition from Nestlé and Groupe Danone in its key markets. Nestlé is one of
the leading producers of food products in North America and Europe, both key markets for Unilever, and the company's
enlarged Dreyer's business poses a serious threat to Unilever's share in the ice cream market. The group primarily 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.

Government regulations

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 the launch of new products and result in higher product development expenditure.

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At the EU level, the European Commission has published a draft regulation for the Registration, Evaluation and
Authorization of Chemicals (REACH), along with restrictions applicable to these chemical substances, and has set up a
European Chemicals Agency. 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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