Unilever Reports Strong Growth Momentum Despite a Challenging Environment

We have further strengthened our leading positions in developing and emerging markets and made encouraging progress in re-establishing volume growth in Western Europe.

4 Feb 2010 --- Underlying volume growth at 2.3% accelerated through the year, reaching 5.0% in the fourth quarter. The increase in volume growth was achieved in most of our key categories and countries and translated into improved share performance in all regions as the year progressed.

Advertising and promotional expenditure increased by 80bps. Margin development was underpinned by volume efficiencies and savings of €1.4 billion from lower supply chain costs and a leaner organisational structure.

Cashflow from operating activities up by €1.4 billion driven by significant improvement in working capital, and after a €0.5 billion increase in cash contributions to pension funds.

Paul Polman, Chief Executive Officer: “We made good progress in challenging market conditions. Our market share improvements were broad-based and improved throughout the year. Our brands are stronger, driven by better quality innovation and a step-change in advertising and promotional expenditure. We have further strengthened our leading positions in developing and emerging markets and made encouraging progress in re-establishing volume growth in Western Europe. The organisation is moving fast towards a stronger performance culture. We are faster and more agile and focused on serving over 2 billion consumers every day.

We expect continued pressure on consumer spending power and heightened levels of competitive activity in 2010. We will continue to focus on volume growth as the main driver of long term value creation, whilst delivering steady and sustainable year-on-year improvement in operating margin and strong cashflow.”

In the following commentary we report underlying sales growth (abbreviated to ‘USG’ or ‘growth’) at constant exchange rates, excluding the effects of acquisitions and disposals. Turnover includes the impact of exchange rates, acquisitions and  disposals. Unilever uses ‘constant rate’ and ‘underlying’ measures primarily for internal performance analysis and targeting purposes. We also comment on trends in underlying operating margins (meaning before the impact of restructuring, disposals, and other one-off items, which we collectively term RDIs) and use the movements in Ungeared Free Cash Flow and Return On Invested Capital to measure progress against our longer-term value creation goals. We may also discuss net debt, for which we provide an analysis in the notes to the financial statements. Unilever believes that such measures provide additional  information for shareholders on underlying business performance trends. Such measures are not defined under IFRS and are not intended to be a substitute for GAAP measures of turnover, operating profit, EPS and cash flow. Please refer also to notes 2 to 5 to the financial statements.

REGIONS

Despite some of the most difficult trading conditions in recent memory, all regions delivered an improving trend in volumes and market share, driven by stronger innovation and advertising and promotional support. Discipline in execution is also improving. We have improved customer service levels and are starting to see progress in onshelf availability. We have taken decisive action to ensure that our prices stay competitive and where appropriate we have adjusted prices to reflect easing commodity costs, just as we took necessary increases in 2008. Cost saving programmes continued to deliver significant benefits across the business.

We are accelerating the roll-out of innovations across more countries.

Asia Africa CEE – Full Year USG +7.7%, Volume +4.1%, Underlying operating margin +220 bps

In a very challenging and volatile environment the region posted another strong growth and margin improvement. Volume growth accelerated quarter-on-quarter and market shares progressed in most parts of the region with the exception of India, where actions have been taken across the portfolio to strengthen market shares.

We continue to invest aggressively behind the fast-growing emerging markets including China and Russia. We have implemented business models which have proven successful in other parts of the world in order to reach increasing numbers of consumers and to build consumption. Having established the regional supply chain centre in Singapore we are increasing leverage, speed and scale across the region.

The operating margin before RDIs was up by 220 bps in the year as a result of lower commodity costs and operational leverage.

The Americas – Full year USG +4.2%, Volume +2.5%, Underlying operating margin + 70 bps

A competitive performance with continuing momentum across the business. Volume growth continues to accelerate with all major units contributing. Sales in Latin America were up 8.1% with an acceleration of volume growth in Brazil. North America grew at 0.8% reflecting good growth in the retail channel while foodservice was lower, mainly reflecting the exit from unbranded business.

Our focus on every day great execution has delivered benefits across the region with improvements in customer service and in-store presence. The Customer Insight and Innovation Centre enables us to provide solutions which help our customers to grow faster. The operating margin before RDIs was up 70 bps in the year despite the impact of dilution from business disposals.

Western Europe – Full Year USG -1.9%, Volume -0.1%, Underlying operating margin – 240 bps

There were encouraging performances in the year in a number of major markets, with an improving trend in quarterly volume growth. Fourth quarter volume growth of -0.7% translates to between 1 and 2% adjusting for the impact of two fewer trading days. The challenging conditions in Southern Europe continue.

The full power of the single IT system is being leveraged across the business to improve operational execution and to drive efficiencies. We expect to complete the acquisition of the Personal Care business of Sara Lee by Q3 2010. We are rolling out the Customer Insight and Innovation Centres, with the recent opening of a new centre in the UK.

The operating margin before RDIs was down 240 bps in the year, largely due to a substantial increase in marketing investment and the negative impact of a weaker sterling on our UK business.

CATEGORIES

We continued to support the growth of global brands through the rapid rollout of bigger and better innovations to an increasing number of countries. In addition we substantially increased brand support levels at the same time as media rates were lower. Overall, we significantly increased share of voice. We continue to see the impact of the tough economic conditions on consumers in many key markets as we are focused on providing products which meet their needs, increasingly at value prices.

Savoury, Dressings and Spreads – Full Year USG -0.1%

Our Savoury business showed good growth with continued success from Knorr bouillon gel ‘stockpots’ which have been rolled out to 13 markets. Share trends are improving, with Western Europe benefiting from strong renovation of Knorr. Latin America was boosted by Knorr instant soup and rice seasoning launches in Brazil. South East Asia saw good progress from low cost  seasoning mixes, especially in Vietnam and Indonesia.

In Spreads, market conditions remained challenging but good progress was made in gaining share, especially in the UK, North America and Germany, where the ‘family goodness’ campaign continues to celebrate the health benefits of margarine. Dressings growth has been driven by the key markets of the UK, US and Brazil, and also by France, where a return to growth was led by a new Amora campaign. Hellmann’s mayonnaise with free range eggs has been successfully rolled out to many markets supported by communication to inspire new healthy uses of mayonnaise.

Ice Cream and Beverages – Full Year USG +4.0%

In Tea we achieved double digit growth with strong performance from Lipton in many D&E markets. Pyramid bags were  successfully launched in CEE, Lipton Milk Tea was relaunched in China and a Lipton value variant drove major share gains in Turkey. Ades soy-based drinks also delivered double digit growth, driven particularly by the launch of a calcium enriched range in Brazil. In Ice Cream, Magnum continued to be a key growth driver, with the Temptation range performing well in Western Europe. There was good progress in Latin America especially in Brazil, where the brand was successfully re-launched. In North America the Klondike range has been re-launched with a thicker chocolate shell and in Russia good progress was made from innovation and distribution gains. Momentum continued in the South East Asian markets, especially Australia which saw strong growth across the entire ice cream range.

Personal Care – Full Year USG +5.3%

Our Personal Care category delivered strong growth across the board. Dove growth was sustained by advertising which emphasises core moisturising benefits, the successful ‘Go Fresh’ range and the launch of Dove Nutrium Moisture in the US. The ‘Dove for Men +Care’ range has been launched in Italy, France, Spain and Benelux with encouraging early results. Lifebuoy delivered double digit growth on the back of a relaunch that emphasised core hygiene benefits whilst Pond’s delivered a strong performance in many markets behind new launches and differentiated innovation.

Axe had another good year helped by the successful launch of Axe Hair in the US. Clear continues to make good progress and is now present in over 30 markets. Although weaker in the early part of the year, Sunsilk is now picking up on the back of the new range co-created with leading stylists. TIGI growth is on track, helped by the successful relaunch of Catwalk – the first joint collaboration with Unilever. The Signal White Now mouthwash product has been rolled out to 12 markets with good  results.

Home care and other – Full year USG +7.1%

In Laundry our ‘Dirt is Good’, Surf and Comfort brands all delivered strong growth. Dirt is Good was driven by the continuing success of Small & Mighty concentrated liquids, the relaunch of Omo Automatic and Liquids in China, Omo Tanquinho products for semi-automatic machines in Brazil and new Skip Black and White variants in Latin America. The Surf brand has been launched in Nigeria and Twilight Sensations continues to perform well. Comfort Fabric Conditioners benefited from the concentrated variants and ‘one-rinse’ products launched in Vietnam and Indonesia.

The Cif power cream spray relaunch with Active Shield technology is being rolled out across CEE and Western Europe with promising results so far.