20 March 2012

Unilever PLC
Food Producers

Hold Target Price

(Prev. Buy) (Prev. 2,170p)

2,089p 2,100p 4.3%

Wounded Tigers and fickle commodities: Moving to Hold Our view

We move to Holders, for the first time since 1995 (yes really.) Despite the symbolism, this reflects less a fundamental change of view but more a hard-nosed response to the threats of re-inflating commodities and change afoot at P&G, both of which need we think to be weighed against a still-not undemanding valuation. Fearing another of year of slow grind and risks to input cost guidance, we return to the pavilion, a little older and greyer.

Forecast Total Return

Impact on estimates
0.0

-1.0

Key points
-2.0

-3.0 2012 2013 2014 Change in EPS (norm, cont) - FD (%)

I Moving to Hold, for the first time in...er...a while. We move from Buyers to Holders of Unilever, for the first time since 1995. I Still admirers. We continue to support what Unilever is trying to achieve. But not unconditionally. We anticipate another year of slow grind in FY12. And grindstones are never very comfortable places to sit, in our experience. I Fearing P&G's wounded tiger... P&G's aggressive new cost reduction plan has resonated around the market. And rightly so we think. We expect a fresh round of P&G aggression, which has the capacity to hurt Unilever in its Home and Personal Care category and in its Developing Market strongholds. I ...and a Groundhog Day on commodities. In 2011 Unilever gave too optimistic commodity guidance in Feb, only to revise it up at the Q1. With oil at $125, we fear a re-run. We downgrade forecasts by 2%, reflecting flat margins in FY12. I Limited room for slips. The downgrade implicit in moving to 'core EPS' was already testing the valuation. Despite a weak open to 2012, the shares remain close to their market-relative high. After falling by 2% on P&G's news, they have now recovered again. This all adds up to Hold territory for us, at a reduced price target of 2100p, with attendant nervousness near-term. Financials and valuation
Revenue (m) EBITDA (m) EBITA (m) PBT (normalised) (m) Net income (normalised) (m) EPS (norm, cont) - FD (c) FCFPS - FD (c) NAV per share (c) DPS (c) PE (normalised) (x) Price/NAVPS (x) EV/Revenue (x) EV/EBITDA (x) FCF yield (%) Dividend yield (%)

EPS (norm, cont) - FD (c) Old New

2012E 2013E 2014E 157.8 154.3 169.8 165.9 185.1 181.0

Source: Investec Securities estimates

Market Cap Enterprise value Average daily volume (000s) Index RIC / Bloomberg

60,325m 70,823m 2,668 FTSE100 ULVR.L / ULVR LN

Share price performance

2500 2400 2300 2200 2100 2000 1900 1800 1700 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12

Year end: 31 December

2010 2011 2012E 2013E 2014E 44,262 46,467 50,945 53,444 56,109 7,024 7,318 8,222 8,798 9,439 6,205 6,289 7,125 7,597 8,171 5,824 6,101 6,585 7,086 7,731 3,948 4,114 4,515 4,870 5,331 135.9 141.5 154.3 165.9 181.0 130.2 111.4 138.7 164.5 178.5 513.6 506.2 575.3 650.8 732.6 83.2 88.2 93.2 100.1 109.2 17.9 17.6 16.1 15.0 13.8 4.7 4.9 4.3 3.8 3.4 1.9 1.8 1.7 1.6 1.5 11.8 11.5 10.3 9.6 8.9 5.3 4.5 5.6 6.6 7.2 3.4 3.5 3.7 4.0 4.4 Source: Company accounts/Investec Securities estimates

1m Price Rel. FTSE All Share 2.73 1.61

3m (0.43) (9.25)

12m 13.46 12.29

Source: FactSet

Analyst(s)

Martin Deboo +44(0) 20 7597 5044 martin.deboo@investec.co.uk

Readers in all geographies please refer to important disclosures and disclaimers starting on page 26 In the United Kingdom this document is a MARKETING COMMUNICATION. It has not been prepared in accordance with the rules in the FSA Conduct of Business Sourcebook designed to promote the independence of research and is also not subject to any prohibition on dealing ahead of the dissemination of research.

20 March 2012

Unilever PLC

Heading for the pavilion after 17 years

We change our recommendation on Unilever plc from Buy to Hold, at a reduced 12 month target price of 2100p (was 2170p). We are no longer Buyer of Unilever, for the first time in 17 years This is a big moment for us, as we have retained an unbroken Buy recommendation on Unilever since 1995. No, that isnt a misprint and bah humbug to anyone who chooses to accuse us of not holding long term investment perspectives. We turned conviction Buyers when this analysts predecessor at Investecs ancestor firm Henderson Crosthwaite, David Lang, turned bullish in the aftermath of the Persil Power debacle in the early 1990s. Our Buy recommendation has weathered many storms since then. And it has of course been both very right at times and very wrong at others. But we can console ourselves with the good news that 100 invested in Unilever in 1995 is now worth 568, against only 343 for the FTSE 100 and 492 for the MSCI global staples index. However the bad news is that, over the same period, 100 invested in P&G, Colgate and Nestle would have returned more. Unilever has performed strongly since its August 2004 nadir A more meaningful horizon for this analyst, perhaps most readers and Unilever today is how the shares have moved since their nadir in mid-August 2004, when the companys leadership transitioned from Niall Fitzgerald to Patrick Cescau and the move to the de-federalised One Unilever organisation was initiated. With the shares then at their lowest point since the turn of the Millennium, David Lang chose to restate his Buying conviction. Since that point, an investment of 100 in Unilever plc would have returned 266, besting both the close peer group and the relevant indices materially.

Exhibit 1a: Value now of 100 invested on 1/1/95 As at 9 March 2012

828 568 492 343 626 656

Exhibit 1b: Value of 100 invested on 13/8/04 As at 9 March 2012

266 207 179 149 216 220

FTSE 100

MSCI staples

Unilever

P&G

Nestle

Colgate

P&G

FTSE 100

MSCI staples

Colgate

Nestle

Unilever

Source: Datastream; Investec Securities analysis

Source: Datastream; Investec Securities analysis

Our change of view doesnt reflect any sudden disillusionment and we remain supportive of the company

So why move to Holders now? Given that this marks an epochal event for Investec, one might imagine that we have had some sudden disillusionment with Unilever and all it represents. Not really. We continue to be supportive of this company and what it is trying to achieve. And we still find it one of the more intriguing and involving stories in the space. But, despite a New Year correction, the valuation is far from undemanding by historic standards. And much as we like to think of ourselves as evangelists for

20 March 2012

Food Producers

long-term, patient investing, we think its also right to challenge ourselves to make better calls on Unilever on a 6-12 month horizon than we have been doing at times during the last 17 years.

Another, potentially turbulent, air pocket in the share price?

One of our clients has recently referred to Unilevers share price as being vulnerable to hitting air pockets. We think that the shares are in such an air pocket now. And to us it feels like an air pocket that may be of more than usually large size and which might contain some clear air turbulence. The renewed threat from P&G and the resurgence of commodity inflation are the key factors that are making us more cautious There are two potential causes of this turbulence. The first is that, like many in the market, we have been troubled by recent stirrings in the global staples jungle made by that most wounded of tigers, P&G. Add to that the presence of a couple of wounded retail tigers, in the form of Tesco and Carrefour, and life in the staples ecosystem suddenly looks more dangerous. Then there is Unilevers bugbear of commodities. Already worried in February by the slow rate of deflation in their raw mats basket, we now find it inflating again, not just on the back of $125 crude, but also on the back of $1200 palm oil. Against all this, and despite its recent correction, Unilever is sitting on a relative valuation to the FTSE 100 that is high by historic standards, as our broader market strategy call moves to neutral (from overweight) on consumer staples.

Feeling impatient again

All those triggers might be sufficient in themselves to make us cautious. But behind the scenes, our love affair with Unilever has entered one of its periodic longeurs. December 2011s Investor Seminar in Istanbul found us in our most adoring frame of mind for a few years. But then came Februarys Q4 and the realisation that, at least from our point of view. FY12 looks set to be another year of slow grind. And for us grindstones have never been the most comfortable of places to sit. Particularly when others in our coverage like Diageo, Pernod and the Tobaccos seem to be bringing home the earnings bacon so apparently effortlessly. Its also fair to say that what we see as the slow pace of Unilevers volume turnaround is further source of frustration What attracts us to Unilever, and attracts us still, is the enormous potential for a performance turnaround and the inorganic fruits from rationalising its portfolio. As recently as November, we had been arguing in a note that there was a clear path to a share price of 2500p and above for the plc if Unilever could deliver performance commensurate with its Household & Personal Care (HPC) category exposure and its sector-leading Developing and Emerging (D&E) market participation. This attraction remains, our move to a Hold recommendation notwithstanding. But what frustrates us about Unilever is what is, in our view, limited hard evidence for the promised volume turnaround. Our long term analysis of Unilevers demand curve offers a positive signal which is tentative at best. The experience of FY11 is that delivering growth in hotly-contested categories like Home Care has been proving costly to margins that were already sub-optimal, in our view. And that was even before P&G gets going again. And when one benchmarks Unilever against the peer group, we find that performance is no more than respectable. So we have been in the habit of describing ourselves as second quartile bulls on Unilevers recovery. With the valuation at this level and with the competitive and commodity pressures as threatening as they are, that is no longer the basis for a Buy recommendation. So we return to the sidelines for the first time since 1995.

Unilever PLC

Exhibit 2: The road well-travelled Unilever plc share price since 1/1/95. As at 9 March 2012
2500p

2000p

2006-2008: Organic growth accelerates in 12 out of 14 quarters. Bull market

Q2/Q3 2008: Exploding commodity costs necessitate aggressive pricing actions

H2 2011: Unilever gains from defensive rotation

Q2 2010: Margins miss

Q3 1999: P&G attack in Brazil

1500p

2/2004: Path to Growth disappoints. Fitzgerald announces his retirement

1996-1998: Portfolio rationalised, inc.sale of National Starch 10/08: Paul Polman appointed CEO. Lehman falls 2/2005: Patrick Cescau takes over as CEO. New, Unilever 2010 organisation announced

2009/10: Volumes expand rapidly as organisation changes & commodity costs fall Jan-Mar 2009: Polman takes over. Earnings guidance abolished

1000p

9/2004: Vitality mission launched. Earnings guidance reduced 2000: Bestfoods, Ben & Jerrys & Slim-Fast acquired. Path to Growth strategy announced

500p

1996: Niall Fitzgerald appointed CEO. 1994: Shares languish in aftermath of Persil Power debacle

0p Dec-94

Dec-95

Dec-96

Dec-97

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Source: Datastream; Investec Securities analysis

20 March 2012

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Food Producers

Reducing 12 month price target to 2100p

We reduce our price target to 2100p, reflecting both our downgrade and a degree of caution As well as changing our recommendation, we are reducing our 12 month price target to 2100p. With Unilevers move to core operating profit and earnings, we moved our valuation model in line in January, by subtracting cash restructuring charges from underlying EBITDA. This had the effect of reducing our price target to 2170p in January. As we discuss later, we are today downgrading our FY12E forecasts by 1% at the operating level and c.3% at the core EPS level in constant currencies. Our most critical assumption is the target EV:EBITDA multiple of 9.8x on Unilevers subsidiary profits. This increases from our previous 9.5x, but represents a modest discount to the current market multiple of 10.0x, reflecting our caution on the outlook. Note that our EV:EBITDA multiples are adjusted for the distorting effects of JVs & Minorities. In Unilevers case, the adjusted EV:EBITDA multiple is higher than the headline multiple because of the impact of its valuable minorities on the ratio. Our target multiple of Unilever of 9.8x represents a 6% discount to Nestle (Not Rated) on a like-for-like basis. An increase in our forecast of net debt also weighs on the equity valuation. All the above results in a target valuation of 2100p on a 12 month horizon, per our detailed logic in Exhibit 3 (on a rounded basis). For those who prefer PER multiples, note that our valuation equates to a target prospective PER of 14.9x. Risks to our target price include: Consumer demand uncertainties. Unilever operates in a mix of both Developed and Developing markets. In the former, consumer wallets remain under pressure. In the latter high rates of growth in consumer spending are vulnerable to commodity price changes, policy shifts and the broader macroeconomic environment. Competitive pressures. Unilever competes in the bulk of its market with large global competitors such as Nestle and P&G, plus local competitors such as Tata Group. All these players are hungry for growth and market share and P&G in particular are evidencing renewed aggression. We discuss P&G in more depth elsewhere in this note. Commodity costs. We estimate that 30-35% of Unilevers sales are accounted for by raw and pack materials whose prices have proved to be volatile. We analyse the latest picture on commodities elsewhere in this note. Foreign currencies. The bulk of Unilevers sales and costs are denominated in currencies other than its reporting currency of the . Many of Unilevers currency exposures are volatile. We are currently forecasting fx translation as a positive influence on FY12 earnings but this may change. Tax and financing. Unilever is not a highly leveraged company and it is guiding to a long term underlying tax rate of 26%, which is sector-average. So we judge the tax and balance sheet risk to earnings and valuation as low. However Unilever remains susceptible to changes in international tax and borrowing rates.

This reflects a modest earnings downgrade offset by a slightly higher target multiple

There are a number of risks to our target price

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Unilever PLC

Exhibit 3: Logic for our target valuation Based on capitalisation of prospective forecasts 12 months from now unless otherwise stated
EBITDA less cash restructuring Target EV:EBITDA multiple on core Enterprise value of core (A) Earnings from JV's & Associates Target PER multiple on JV's & Associates Equity value of JV's/Associates (B) Earnings from non-controlling interests Target PER on non-controlling interests Deduct equity value of non-controlling interests C Group Enterprise value (=A+B+C) Deduct FY13 year-end net debt Equity value No. of shares Implied plc share price in sterling 9106m 9.8x 89241m 190m 14.0x 2657m (378m) 27.0x (10205m) 81693m (7997m) 73696m 2926m 2114p

PER implied by price target Implied plc share price in sterling EPS in pence Implied PE multiple 2114p 141.7p 14.9x Source: Investec Securities analysis & estimates

20 March 2012

Food Producers

A slow finish to FY11. A decisive performance breakout remains elusive

The market moved on from Unilevers FY11/Q4 (reported on 2 February) a long time ago. But lets return to it from the perspective of how it informs our long term view. The Q4 in Feb was a negative event for the shares The numbers came in more or less in line with consensus expectations on the headline measures. However the shares closed down nearly 5% on the day, reflecting, in our view, market reaction to cautious FY12 guidance and a Q4 volume miss.

Volume growth wilting in the face of strong pricing

Q4 volumes just stayed in positive territory in the face of strong pricing and a trade loading reversal With volumes ahead just 0.1% in Q4 after a c.80bps headwind from the reversal of Q3 trade loading in the US, Unilever were able to sustain their claim that volume growth was in positive territory and that H2 FY11 was no re-run of H2 FY08, when aggressive pricing killed volume growth. But there was no doubt that the law of price elasticity had taken a toll on Unilever, with H2 volume growth averaging 1% in H2 against 2.2% in H1.

The demand curve is proving slow to shift in the right direction

The difficulty in assessing whether Unilever is making a genuine volume recovery under Paul Polmans leadership is due to the fact that, for the entirety of that leadership, Unilever has been in a period of unprecedented cost and price volatility. Our consistent approach has been to try to eliminate that effect by looking at whether Unilevers aggregate demand curve has been shifting in a positive direction. In other words, is Unilever getting more or less volume growth (relative to its long run history) for a given change in pricing? Exhibit 4 presents our traditional analysis where we relate volume change to price change over the 66 quarters over which we have data (which are coincidentally virtually the same as the duration of our Buy recommendation). Quarters since Paul Polman has been in charge are indicated in red. Our FY12 quarterly forecasts (which we discuss later in the note) are in green. The demand curve line is an interpretive guideline from us and has no statistical significance the historic data points are very widely spread. We think that the evidence for positive progress is tentative The hypothesis underlying Exhibit 4 is that, in the context of high price volatility, a volume turnaround should see the demand curve shifting upwards and to the right i.e. better-than-historic volume growth for a given change in price. We think that there is some evidence for this, based on the quarters since Paul Polman has been in charge. But we also think that evidence is tentative. In late 2009 and early 2010, unprecedented price deflation drove big volume gains. While these quarters are notionally on the left (bad) side of our line, there are few historical precedents for these sort of numbers. So no hard and fast conclusion can be drawn, in our view. In 2011, Unilever has been increasing prices. Volume growth rates have suffered accordingly. But in all the 2011 quarters volumes have remained in positive territory (we have chosen to adjusted Q3 & Q4 for trade loading effects) and have been on the high (good) side of our asserted line.

We continue to put a lot of emphasis on whether Unilevers demand curve is shifting or not

20 March 2012

Unilever PLC

Exhibit 4: Is the demand curve shifting? Unilever organic price/mix vs. volume growth; most recent 66 quarters since Q3 1996 . Quarters under Paul Polman are in red. FY12 forecasts are in green
10% Q198 Q497 Q210 Change in volume Q409 6% Q105 Q410 Q107 Q310 Q398 Q207 Q412 4% Q309 Q101 Q404 Q499 Q306 Q305 Q402 Q400 Q205 Q206 Q397 Q407 Q496Q106Q312 Q111 Q298 Q212 Q396 Q307 Q406 Q209 2% Q300Q197 Q297 Q201Q302 Q200 Q301 Q399 Q299 Q100 Q303 Q401 Q203 Q202 Q104 0% Q103 Q204 Q405 Q304 -2% Q403 Q102 Q498 Q199 -4% -4% -2% 0% 2% 4% 6% 8% 10% Q109

Q110

8%

Q108 Q211 Q112 Q311 Q411 Q308 Q208 Q408

Change in price/mix

Source: Unilever; Investec Securities analysis Note: Q3 & Q4 2011 volume growth has been normalised for the effect of trade loading in the USA in Q3 2011

However the distance above our line isnt that big and there have been many quarters in Unilevers pre-Polman history where the implied elasticity has been as good, if not better. A number of quarters in 1998 and 2007, for example. Ongoing weak consumer conditions and P&G aggression are legitimate factors in the performance equation Clients have argued to us that our interpretation of Exhibit 4 is too harsh. They argue that to have delivered a string of quarters on or above our hypothesised demand curve in the face of weak consumer demand and P&G aggression is an achievement. And that the relative constancy of delivery (as opposed to some of the volatility of the past) is itself a virtue. We agree with this up to a point. We are supportive Holders precisely because of our continued belief in Unilevers project. But, in defence against the charge that we are being too harsh, we would cite Unilevers performance relative to a peer group who are subject to the same pressures.

Performance no more than respectable in a peer group context?

We continue to scrutinise Unilevers sales and margin performance relative to the peer group Exhibit 4 analyses Unilevers performance relative to its own history. But how has the company performed relative to the immediate peer group? Here we think that the evidence is more equivocal and we would evaluate Unilevers performance as no more than respectable. Exhibits 5 reprise our customary analysis of organic growth and margin metrics within Unilevers global foods and HPC peer group, updated to Q4.

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Food Producers

Exhibit 5a: Price inflation has been at the top end of the peer group Organic price/mix development per quarter, % y-on-y

Exhibit 5b: While volume growth has been mid-table Organic volume development per quarter, % y-on-y
12% 10% 8% 6% 4% 2% 0% -2% -4% -6%

10% 8% 6% 4% 2% 0% -2% -4% -6%

Unilever
Unilever Colgate Nestle Reckitt Danone Kraft P&G

Nestle Reckitt

Danone Kraft

P&G

Colgate

Source: Companies; Investec Securities analysis

Source: Companies; Investec Securities analysis

Exhibit 5c: Pricing has driven organic sales growth to the upper end of the league Organic sales development per quarter, % y-on-y

Exhibit 5d: But margin progression has been mid-table Underlying margin development per quarter, change in bps y-on-y
400

10% 8% 6% 4% 2% 0% -2%

300 200 100 0 -100 -200 -300 -400

Unilever Colgate

Nestle Reckitt

Danone Kraft

P&G

Unilever P&G Kraft

Nestle Colgate

Danone Reckitt

Source: Companies; Investec Securities analysis

Source: Companies; Investec Securities analysis

Unilever will no doubt want to point out that, per Exhibit 5c, their organic sales growth performance has moved to the top end of the peer group range in H2 FY11. But this is largely a function of price inflation (Exhibit 5a) where Unilever, Nestle,

20 March 2012

Unilever PLC

Danone and Kraft have all been coping with food commodity cost inflation and had H2 price progression in the mid to high single digit range, with Unilever close to the top end. We dont think that volumes benchmark particularly well We see price growth as largely a function of cost inflation and are therefore more interested, as are Unilever, in the volume metric (Exhibit 5b) Here Unilever have been close to the bottom of the table in FY11. The Q4 dip in volume growth for Unilever is the impact of the Q3 trade loading reversal and we are inclined to ignore this. However excluding this effect by looking at the H2 average, Unilevers volume growth, at only 1% positive, was ahead only of the dowdy Kraft, and behind Nestle, Danone, P&G, Colgate and Reckitt.

Competing in Home Care is proving expensive

What was perhaps most troubling to us in the Q4/FY12 mix was the cost of delivering accelerated growth in Unilevers Home Care (laundry detergents and household products) Division. The good news is that this is Unilever smallest Division, representing less than 20% of sales. But it is also easily Unilevers least profitable, with an underlying operating margin of less than 7% in FY11. This in strong contrast with Divisional peers like P&G and Reckitt Benckiser, both of whom earn c.20% operating margins in this category. Despite rising sales, Home Care margins are low and declined further in FY11 The relevance for the future is that this is the category where Unilever are in most intense competition with P&G, of which more later. And with price, volume and underlying margin being reported at Divisional level for the first time in 2011, we have some better insight into the dynamics of Divisional performance, which we lay out in Exhibit 6.

Exhibit 6: Up against the Cincinatti Kids Unilever Home Care: organic growth and underlying margin trend in percentage points
12% 10% 8% 6% 4% 2% 0% -2% -4% Volume Price Sales Underlying margin Source: Unilever; Investec Securities analysis Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11

Unilevers top line story in Home Care looks great at first blush. After a middling 2010, organic sales growth accelerated across 2011, making Home Care Unilevers second fastest growing Division in 2011, close behind Personal Care. But much of

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Food Producers

this was due to price inflation (a higher proportion of growth than in Personal Care) as Exhibit 6 shows. And slowness to recover price in H1 (or the intensity of competitive pressure, depending on how one wants to look at it) was costly to margins in H1, which fell by 330bps. Given that in H1 P&G were stepping back from the extreme price aggression seen from them in H2 2010, the inference was that Unilever were keeping price keen to drive volume, reinvesting in marketing, or both. Prices increased sharply and margins equilibrated year on year in H2, a period during which P&G proved a relatively more benign competitor. But the anecdotal evidence from P&G CEO Bob McDonalds (now infamous!) whinge on their Q4 call was that in key markets like the UK, Unilever are willing to price aggressively to grow or defend share. This has portents for the future, in our view.

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20 March 2012

Unilever PLC

Groundhog Day on commodities?

Unilever continue to eschew formal earnings or profit guidance, a policy which we continue to support. We therefore continue to strike our forecasts by putting ourselves in the companys shoes as best we can.

FY12 soft guidance commentary felt sensible to us

We continue to see commodity inflation as the starting point for the current year earnings outlook For the past several years, this has amounted for us to putting a stake in the ground around commodity inflation, moving to what level of pricing Unilever will target to recover this and then concluding with the volume and margin implications of those pricing actions, giving due credit for cost savings. This way of looking at the world seemed to accord with Unilever CFO Jean Marc Huets soft guidance commentary at the Q4s. We thought this was a useful commentary at the time. It resolved into: Full year input cost inflation of mid-single digits. Commodity cost inflation in FY12 far lower (than in FY11) but still positive Cost inflation H1-weighted, with gross margins modestly higher in H2 No further significant in-year pricing actions in FY12 but ongoing rollover pricing benefit, presumably H1-weighted A&P a constant percentage of sales in FY12 Further good progress on cost savings, particularly overheads FX translation a c.2% positive influence While no specific guidance on operating margins, a small positive increase is the aspiration

But rising commodities are now posing a fresh challenge

Even in February we were worried that FY12 input cost guidance might have been too optimistic As we say we liked this commentary, save in one respect. Even in early February when the commentary was given, our Unilever input cost model was suggesting that the companys commodity inflation was more likely to be in high single digits, not mid ones. And now comes $125/bbl crude oil, up from $110 at the end of January. Unilever cant be held accountable for the subsequent move in the oil price, but even before this, what we thought at the time was potentially lowballed commodity guidance was troubling us. Exhibit 7 presents the latest output from our model, After a brief period during which average spot prices across Unilevers commodity basket fell, they are now rising again and back towards their peak levels seen in 2010. Now crude oil, plastics & petrochemicals and edible oil prices are rising again While this still means that commodity inflation will have cycled out by the end of 2012 (assuming a six month lag between what spot commodity prices are doing and the prices that Unilever incurs, given hedging and forward buying effects) our sense is that this will be a less encouraging outlook than the one contemplated by CFO Huet when he gave his guidance in early February. We were already thinking that Unilever might need a tad more fresh in year pricing during H1 to deal with residual inflation, contrary to Huets commentary. Now it looks as if the hoped for H2 gross margin expansion may have to be postponed. No doubt our little spreadsheet is no match for Unilevers mighty forecasting engine and crack procurement team. Except that, in 2011, our similar anxieties about lowballed commodity guidance at the Q4 were confirmed by an input inflation guidance upgrade (i.e. negative for margins) at the Q1 in April.

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Food Producers

Exhibit 7: Coming back to the boil again Indexed cost of a weighted, representative basket of Unilevers commodities at prevailing spot prices. As at 9 March 2012

200

180

160

140

120

100

80

Source: Datastream; Investec Securities analysis & estimates

Risk of a re-run of 2011s commodity-led downgrades?

We fear a re-run of 2011s input cost guidance downgrade This leads to a sort of Groundhog Day feeling for us, along the following lines. Unilever open the batting on commodity guidance as best they can. But then crude oil and petrochemical inflation conspire to catch them out on the downside. Forecasts get downgraded at the Q1. Sentiment suffers. In fact, if we remember correctly, Unilever suggested at last years Consumer Analyst Group Europe (CAGE) conference in mid-March that commodity inflation would be at the upper end of then-guided expectations. Within a month and a bit, those expectations were being raised. While no such clear warning was given by CEO Polman at yesterdays CAGE, significant emphasis was put during his address on the challenge posed by $125 oil. So we think we are right to be concerned. Exhibit 8 highlights how the environment has been changing by showing how our forecast of Unilevers quarterly spot inflation has evolved on the four occasions that 1 we have run the model since November 2011 .

Note that our model lags spot inflation by two quarters to proxy hedging & forward buying effects

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Unilever PLC

Exhibit 8: The input cost outlook is looking less favourable as time goes on Differences in our forecast of FY12 commodity basket inflation for Unilever. Nov 2011 to March 2012
25% 20% 15% 10% 5% 0% Q1 -5% -10% 25/11/2011 06/01/2012 27/01/2012 09/03/2012 Q2 Q3 Q4

Source: Datastream; Investec Securities analysis & estimates Note: inflation rates have been lagged by two quarters to proxy hedging & forward buying effects

While our model continues to forecast falling commodity inflation, the extent of that fall has reduced

The pattern is clear. While the model continues to forecast sharply decelerating inflation during 2012, the extent of that deceleration has diminished as we have continually re-forecasted. The causal factors are not just the resumption of inflation in crude oil and plastics, but also the resumption of inflation in palm oil, tea, sugar and aluminium. We find it hard to see cost inflation in intermediate commodities like surfactants, but would expect this to be re-accelerating also. The difference in our Q4 inflation forecast in Exhibit 8 might look small visually, but amounts to some seven and half percentage points. That equates to some 250300bps of additional margin pressure on Unilever.

Now anticipating flat margins in FY12

Exhibit 9 concludes our analysis by presenting our forecast of likely incurred input cost inflation for Unilever in 2012. The experience of our model, per Exhibit 9, is that Unilever tend to incur much lower rates of inflation than pure spot prices would suggest. The historic beta here has been about 0.6-0.7. So our forecast of incurred input cost inflation per quarter is represented by the dotted line. Our latest best view of FY12 input cost inflation is 8-10%, somewhat above Februarys guidance Relative to Unilevers guidance of mid-single digit inflation, Exhibit 9 suggests 8-10% for FY12 as a whole, splitting something like 12-14% in H1 and 4-6% in H2. There is clearly a wide forecasting error on our model and Unilever may yet be proved right. But our model has proved reliable in the past, most significantly in early 2011 when it also forecast a more pessimistic outlook for commodity inflation than Unilevers initial guidance. So we elect to trust it again. We review the anatomy of our forecasts below. But the implication from worsening commodity inflation allied to more intense competition is that we are now anticipating flat margins in FY12E. This adds up to a year of slow grind for us.

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Exhibit 8: Forecasting input cost inflation ahead of guidance in FY12E Historic & forecast trend in Unilevers incurred commodity inflation (red line) relative to spot inflation (blue line) in a representative, weighted basket of Unilevers commodities1
50% 40% 30% 20% 10% 0% -10% -20% -30% -40% 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4

Incurred - actual

Spot - per model

FY12 forecast

Source: Datastream; Investec Securities analysis & estimates 1 Spot commodity inflation lagged by two quarters to proxy hedging & forward buying effects

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Unilever PLC

Danger from P&Gs wounded tiger

Fresh aggression from P&G
We see P&Gs cost-cutting programme, announced on Feb 23, as a signal event We see Procter & Gambles (P&G, Rec: Not Rated) aggressive cost-cutting programme, unveiled at the Consumer Analyst Group New York (CAGNY) conference on 23 February, as something of a signal event in the sector and a direct threat to Unilever. The nexus of P&Gs announcement is that they intend to reduce their cost base $10bn. This represents c.12% of P&G anticipated cost base of $85bn by FY16. Because the $10bn is a gross, not net saving, it is intended to confer on P&G c.950bps of operating margin flexibility. Exhibit 9 analyses the savings by source. P&L line item and origin. Exhibit 10 benchmarks P&Gs programme against other similar programmes in consumer staples that we are aware of. This is an ambitious programme by the standards of the sector This says to us that this is a very aggressive savings programme indeed, being rivalled in magnitude only by BATs sequential epic efforts. But BAT, in our view, is operating in a much more stable and generous pricing climate and, at the time of its initial savings programmes, was carrying a legacy of a luxury goods firm cost base.

Ex. 9a: P&G cost savings x origin

Ex. 9b: P&G cost savings x line item

Mktg. $1bn O'head $3bn COGs $6bn

Ex. 9c: P&G cost savings x source

Leverage $2bn

Leverage $2bn

Cost reduction $8bn

Restruc turing $2bn

Pure savings $6bn

Source: P&G; Investec Securities analysis

Source: P&G; Investec Securities analysis

Source: P&G; Investec Securities analysis

The key question is one of how much the programme will increase P&Gs commercial competitiveness

The key question for investors in Unilever is how much of this flexibility is going to find its way into increased competitiveness from P&G. By which we mean either lower prices or increased commercial investment, most obviously in the form of either more feet on the ground or increased A&P.

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Exhibit 10: Maximum Bob P&G FY12 savings relative to other similar programmes, in bps margin equivalent

P&G FY12-FY16 BAT FY03 - FY07 BAT FY08 - FY10 Cadbury FY07Heineken 'F2F' FY06 - FY08 Heineken 'TCM' FY09 - FY11 Diageo FY09 - FY12 SAB 'BCP' FY11 - FY14 190 170 430 420 500 810

950 940

Source: Companies; Investec Securities analysis & estimates Note: Cadbury was the net benefit of achieving its declared mid teens margin target

A significant threat to Unilever

P&G have indicated that they are looking to deliver between 30 and 80 bps of annual margin improvement A clue to how big this might be was given by P&G CFO John Moellers comments under questioning at CAGNY. Moeller chose to re-iterate long term guidance of 45% top line growth and 8-10% EPS growth. Moeller then suggested that this meant that P&G would need to achieve between 30 and 80 basis points of annual margin improvement. With the cost savings programme capable of generating 240bps of margin flexibility per annum, that adds up to a lot of investment to our eyes. Exhibit 11 tries to assess this flexibility more sharply, consistent with Moellers commentary. This looks at an extreme best and worst case scenario from a Unilever perspective. Our analysis suggests that P&G will be looking for between 20 and 100 basis points of annual margin improvement, which is in the same zone as Moellers 30 to 80bps. It seems to us that P&G have a range of choices between the two extremes represented by the best and worst case in Exhibit 11. A best case scenario for Unilever is that P&G pursue a margin maximisation strategy. The corresponding worst case is that they invest savings into pricing In a best case scenario for Unilever, P&G would pursue a margin maximisation strategy, returning more of the benefits of its cost savings to the bottom line. Under a worst case scenario for Unilever, they would pursue a more top line driven sales, volume and market share seeking strategy, investing the bulk of the cost savings to achieve this. Exhibit 11 puts some indicative numbers around this. In the worst case scenario P&G could afford to invest c.220bps of sales annually. If all this was invested into price then this would afford 2.5% to 3.0% annual price reductions (and would imply a required rate of volume growth of in the region of 8%). In the best case scenario, the equivalent ratios would be 140bps or 1.5% to 2.0% price reductions, with required volume growth of 6%.

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Unilever PLC

Exhibit 11: Bad news for Unilever, whichever way you cut it Assessment of P&G flexibility under a best and worst case scenario from a ULVR perspective
Worst case P&G guided growth metrics (%) Sales EPS Required growth ex. top line Tax & balance sheet efficiency benefits (assumed) Required from margin expansion Cost, price & margin implications (in bps per annum) Required margin expansion Annualised benefit from cost savings Available for 'investment' Negative pricing impact (if all invested into price) Implied required volume growth 20 240 220 -2.75% 7.75% 100 240 140 -1.75% 5.75% 5% 8% 3% 2% 1% 4% 10% 6% 1% 5% Best case

Source: P&G; Investec Securities analysis & estimates

What might P&G do? We find their intentions hard to read, partly because were not heavily exposed to their managers and investors and partly because their strategy has been fast evolving and changing, to put it mildly, P&Gs pricing strategy under Bob McDonald has been a fast-evolving picture Exhibit 12 illustrates these shifts by looking at the organic top line metrics under P&G CEO Bob McDonalds tenure. This shows the shift from what looks like a low price and volume-seeking strategy in 2010 to a more balanced ticket in 2011. We think this reflects both McDonalds intent to address price gaps that P&G felt had become too wide in 2008 and partly a willingness to re-invest the some of the benefits of positive fx translation on earnings back into keener pricing. Note that P&Gs top line metrics during 2010 were striking similar to our worst case for Unilever metrics in Exhibit 11. However what hasnt progressed under either strategy have been margins, as Exhibit 13 testifies. The result has been that P&G were coming under a lot of pressure from Wall Street to address their cost base. Compounding this, in our view, have been a further two factors: fx translation shifting from being a tailwind on earnings to a headwind in FY12 and P&Gs low penetration (relative to Unilevers) in Developing Markets. Building this penetration will require both investment per se and the need to accommodate inherent price and margin dilution from selling lower price point products in markets where P&G will tend to be sub-scale. What this says to us is that P&G are going to be utilising the bulk of their margin flexibility in Unilevers heartland in Developing and Emerging markets. We think this has the potential to make trouble for Unilever.

Margin progression has been absent and P&G has been under pressure from Wall Street to cut costs

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Exhibit 12: A shifting strategy for P&G on the top line P&G quarterly organic sales growth; per calendar quarter

0% 7% 4% -2% 5% 8% 8% 5% 5% 3% -3% -2% -4% -4% -1% 2%

2% 4% 3% 1%

2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011Q1 2011Q2 2011Q3 2011Q4 Volume Price Source: P&G; Investec Securities analysis

Exhibit 13: which is yet to deliver any margin progression P&G quarterly organic margin progression; per calendar quarter

160

160 80 (10) (210) (310) (210) (10) (160) (260)

2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011Q1 2011Q2 2011Q3 2011Q4 Source: P&G; Investec Securities analysis

Precedents not encouraging

We think that P&G have the potential to cause plenty of trouble for Unilever How much trouble could P&G cause? Plenty is the short answer in our view. This reflects both the extent of the threat that P&G pose and the precedents from the past. Exhibits 14 reprise some analysis of Unilevers overlap with P&G initially assembled when P&G was previously more than usually aggressive, in September 2010. The

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Unilever PLC

principal messages are that a substantial proportion of P&G and Unilevers categories are non-overlapping (e.g. Blades & Razors for P&G and Foods for Unilever) and that hot competition with P&G is in regions and categories that represent c.20% of Unilevers sales.

Exhibit 14a: P&G sales by category Based on FY11

Ex.14b: Proportion of ULVR sales x competitive intensity with P&G Per Investec estimates

19%

24% Hair, skin, fragrance Blades & razors Healthcare 10% Snacks & Pet Fabric care Babycare 14% 4%

19%
Hot (HPC Asia & Europe)

58%

Warm (other HPC ex. deos)

23%

Cold (the rest)

30%

Source: P&G; Investec Securities analysis

Source: P&G; Unilever; Investec Securities analysis & estimates

While the ultimate competitive overlap between Unilever & P&G can be overstated, where we are more worried by their new move than we were by 2010s aggressiveness

Our conclusion in September 2010 was that the P&G threat to Unilever can be got out of proportion. However that was based partly on the observation that their then current rate of pricing aggression was extracting too high a cost to margins and was unsustainable. So it subsequently proved. But P&Gs new aggression represents a four-year programme that, per Exhibit 11, is capable of funding investment in pricing at least in line with mid-2010 throughout that period. We should also point out that, when we were writing in September 2010, Unilevers shares had under-performed the FTSE 100 by 13% in the most recent 3 months, partly because of the markets worries about P&G. This was one of the recent instances of getting our near term stock calls on Unilever wrong that we alluded to in the opening section.

There are some significant precedents for P&G aggressiveness impacting Unilevers performance and share price

So the threat from P&G, even if ultimately it can be overstated, has the capacity to hurt both Unilevers performance and its share price. Three historical precedents serve to illustrate the impact: Brazil 1999: the costs of defending against a P&G attack in laundry detergent led to a substantial profit undershoot at Q3. The share price fell from 1250p to 890p at the trough, a close to 30% decline. India 2004: P&G attacked again in laundry detergent, against which Unilever mounted an unblinking defence. The effect was to virtually eliminate Hindustan

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Unilevers underlying sales growth for that year and reduce its operating margins by over 500bps. This was one of the many factors that influenced Unilevers weak share price performance in 2004. India 2010. A fresh attack by P&G and another unblinking defence in laundry and haircare drove an 80% increase in category media spend in laundry and 50% in hair. Unilever reduced the price of one of its core laundry brands, Rin, by 30% in order to remain competitive. Hindustan Unilevers EBITDA margins compressed by 170bps in the second calendar quarter of 2010. We think that this was one of the factors that led to the shares under-performing the FTSE 100 by 13% in the third quarter of 2010, as discussed above.

Unilever can and will fight, but there is risk to both margins and the share price that the market has not yet fully discounted
We dont expect Unilever to be supine in the face of the P&G threat None of the above is intended to suggest that Unilever will be supine in the face of the P&G threat. We chose to exclude Unilever from the cost savings benchmarking in Exhibit 10. But the fact is that they have been matching P&Gs gross savings promises for a few years now, with c. 1bn pa of gross savings (250bps of sales) consistently being achieved. So Unilever too has a bit of flexibility. At CAGE yesterday, Unilever CEO Polman was at pains to emphasise this very point.. We think that Unilever is in better competitive shape now than in the 1990s/mid 2000s We also think that Unilever is now a much leaner, meaner, fighting machine than it was in the late 1990s and mid noughties. CEO Polman has fostered a culture where losses in local market share will not be tolerated. In-market execution continues to improve. The innovation pipeline is beginning to bear fruit. And finally there are the right people in the right places. Polman himself (who was in charge of the laundry category at P&G for many years) has put himself in charge of the Home Care category. And Dave Lewis (who reputedly took on P&G and won during his stewardship of River Plate (Argentina, Uruguay and Paraguay) in 1996) now leads the Personal Care category. Unilever has tremendous strength and depth in Developing and Emerging markets and can out-scale P&G in most of them, in markets where absolute scale remains critical. The anecdotal evidence, from India and elsewhere, is that top line delivery can be sustained in the face of attack. But only at often ruinous short term cost to margins and usually with a lower-than-before-it-all-started long run margin consequence. So we think that market can and should be concerned by P&Gs February 23 announcement. And so it was up to a point, with the shares falling by 2% on the day after. But the share price has subsequently quickly recovered. This leads us to fear further near term volatility as P&Gs moves take shape and the market wakes up to renewed commodity inflation.

Ultimately this feels like a material margin risk to us

We dont think that Unilevers share price has fully discounted the threat

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Unilever PLC

Downgrading FY12 forecasts. A year of flat margins at best?

We review our forecasts for the first time since the Q4 We review our forecasts for the first time since the Q4 on 2 February. Consensus earnings numbers have been downgraded by c.3% since that point. We think that this reflects primarily the adoption of Unilevers new core EPS measure (which includes normal restructuring charges in both profit and earnings) across the consensus. We have already been forecasting core EPS for some time, up to an including the Q4, so there is no change to our forecasts from this source. Despite all the fuss above, our forecasts actually change little at the headline level. However we expect the market to continue to obsess around the minutiae of Unilevers underlying top and bottom line performance. Here we have completely rereviewed our numbers and present our quarterly and half yearly view for the first time. The principal change is that we now expect Unilever to see flat margins in FY12E, a below-guidance view and a downgrade from our previous forecast in January. Exhibit 15 analyses changes to our FY12E & FY13E forecasts by line item at actual and constant fx. Exhibit 16 analyses our top-line forecasts on a quarterly basis. Exhibit 17 analyses both our top-line and margin forecasts on a half yearly basis.

The move to core EPS has no impact on our forecasts

Exhibit 15: Changes to Investec FY12E/FY13E forecasts at actual & constant fx

FY12E Const. fx 0% (1%) 0% 12% (2%) (3%) 18% FY13E Const. fx 0% (1%) 0% 21% (2%) (3%) 25%

Actual fx Sales Core op. profit JV's/Associates/other Net financing Core PBT Core EPS Net debt 0% (1%) 0% 11% (2%) (2%) 17%

fx impact 0% 0% 0% (1%) 0% 0% (1%)

Actual fx 0% (1%) 0% 20% (2%) (2%) 24%

fx impact 0% 0% 0% (1%) 0% 0% (1%)

Source: Investec Securities estimates

Exhibit 16: FY12E organic top line forecasts per quarter and half year
Q1E Price Volume Total 5.0% 1.8% 6.9% Q2E 3.4% 2.4% 5.9% H1E 4.2% 2.1% 6.4% Q3E 2.0% 2.4% 4.4% Q4E 0.6% 4.2% 4.8% H2E 1.3% 3.3% 4.6% FYE 2.8% 2.7% 5.5%

Source: Investec Securities estimates

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Exhibit 17: FY12/FY13E forecast semi-annual/annual organic sales and margin development
Volume H1E H2E 2012E 2013E 2.1% 3.3% 2.7% 3.8% Price 4.2% 1.3% 2.8% 1.2% Sales 6.4% 4.6% 5.5% 5.0% Margin (bps) (35) 35 0 25

Source: Investec Securities estimates

We expect pricing to decelerate and volume to accelerate relative to FY11

Looking at top line dynamics first, we assume that the pricing component of sales growth fades during FY12 given the absence of substantial new in-quarter pricing and as Unilever lap the anniversaries of 2011 price increases. Despite difficult demand conditions in Developed Markets, we forecast reaccelerating volumes in FY12 as Unilever laps easier volume comps and the reduced rate of price increases benefit offtake. Note for example that the prior year volume comp is only 2.5% in Q1 FY12, as against 5.1% in Q4 FY11.

We now expect margins to be flat in FY12

We revised our FY12E core margin forecast from 20bps of margin expansion to flat for the year. This reflects our concerns discussed above around the double whammy of resurgent commodity cost inflation and renewed P&G aggression. Arguably we may still be too optimistic on margins given the significance of these threats. However we are now below company soft guidance and will look again at the issue after the Q1.

Exhibit 18: FY12E moving parts of core margin forecast

1 340 230 (300) (20) (250)

13.6%

13.6%

FY11A

Pricing

Cost savings Change in Input cost Investment in restructuring inflation A&P

Other

FY12E

Source: Investec Securities estimates

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Unilever PLC
Company profile
Unilever ranks behind Nestle and Kraft in global Foods with total sales of 22bn (55% of group sales). It is world #1 in all its core segments: Spreads, Tea, Culinary, Ice Cream and Frozen Foods and is growing fast in Health & Wellness. In Personal Care (28% of Group sales) Unilever ranks behind L'Oreal. In Home Care (c. 18% of sales) Unilever ranks behind Procter & Gamble. However it is clear leader in both categories in fast growing Developing & Emerging markets.

Calendarised Valuation
Calendar PE (x) Calendar Price/NAVPS (x) Calendar EV/revenue (x) Calendar EV/EBITDA (x) Calendar FCF yield (%) Calendar dividend yield (%)

Year end: 31 December

2010 2011 2012E 2013E 17.9 17.6 16.1 15.0 4.7 4.9 4.3 3.8 1.9 1.8 1.7 1.6 11.8 11.5 10.3 9.6 5.3 4.5 5.6 6.6 3.4 3.5 3.7 4.0 Source: Company accounts/Investec Securities estimates

Ratios and metrics

Revenue growth (y-on-y) (%) EBITDA growth (y-on-y) (%) Net income (normalised) growth (yoy) EPS (normalised) growth (y-on-y) (%) FCFPS growth (y-on-y) (%) NAVPS growth (y-on-y) (%) DPS growth (y-on-y) (%) Interest cover (x) Net debt/EBITDA (x) Net debt/equity (%) Net gearing (%) Dividend cover (x) EBITDA margin (%) EBITA margin (%) ROE (%) ROCE (%) NWC/Revenue (%) Tax rate (normalised) (%) Tax rate (reported) (%)

Year end: 31 December

2010 2011 2012E 2013E 2014E 11.1 5.0 9.6 4.9 5.0 6.3 4.2 12.3 7.0 7.3 14.0 4.2 9.7 7.9 9.5 13.4 4.1 9.1 7.5 9.1 (18.8) (14.4) 24.5 18.5 8.6 19.4 (1.5) 13.7 13.1 12.6 6.7 6.1 5.6 7.5 9.1 15.7 16.7 14.3 15.9 19.6 0.9 1.2 1.1 0.9 0.7 44.2 58.8 53.3 41.9 31.8 30.7 37.0 34.8 29.5 24.1 1.6 1.6 1.7 1.7 1.7 15.9 15.7 16.1 16.5 16.8 14.0 13.5 14.0 14.2 14.6 29.7 28.6 29.5 28.0 27.1 26.4 22.8 23.6 24.5 25.8 (4.7) (4.0) (2.6) (2.1) (1.7) 26.1 26.5 26.0 26.0 26.0 24.9 25.7 26.0 26.0 26.0 Source: Company accounts/Investec Securities estimates

Other information
Average daily volume (000s) Free float Number of shares in issue (m) Next News Website 2,668 95% 1,283 Q1, 26 April www.unilever.com

Divisional breakdown (m)

Revenue Western Europe Americas Asia Africa CEE 3yr CAGR(%) 6.5 1.7 5.7 9.9 3yr CAGR(%) 8.1 3.6 7.6 11.9 1.5 1.8 1.8 1.7 2011 46,467 12,269 15,251 18,947 2011 6,289 2,109 2,381 2,411 14 17 16 13

Year end: 31 December

2012E 50,945 12,545 16,820 21,580 2012E 6,906 2,189 2,649 2,730 14 18 16 13 2013E 53,444 12,721 17,410 23,312 2013E 7,376 2,258 2,794 3,019 14 18 16 13 2014E 56,109 12,912 18,020 25,177 2014E 7,952 2,344 2,964 3,374 14 18 16 13

Currency Information
Reporting Currency EUR Quote Currency GBP Rates used to translate per share metrics from Report to Quote Currency. FY forecast average rate assumption (2012E) 0.84 FY forecast average rate assumption (2013E) 0.84 FY forecast average rate assumption (2014E) 0.84 Rates used to translate NAV per share and items required for calculating Enterprise Value, from Report to Quote Currency. FY spot rate assumption (2012E) 0.84 FY spot rate assumption (2013E) 0.84 FY spot rate assumption (2014E) 0.84 Rates used to translate the rolling DPS from Report to Quote Currency for Forecast total return calculation. 12 month forecast average rate 0.84 Operating profit Western Europe Americas Asia Africa CEE Operating profit margin Western Europe Americas Asia Africa CEE

Source: Company accounts/Investec Securities estimates

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Summary financials (m)
Income Statement Revenue EBITDA Depreciation & amortisation Operating profit Other income, JVs and associates Net interest PBT (normalised) Non-recurring items/exceptionals PBT (reported) Taxation Minorities & preference dividends Discontinued / assets held for sale Attributable profit Net income (normalised) EPS (reported) - FD (c) EPS (norm,cont) - FD (c) DPS (c) Average number of group shares - FD (m) Average number of group shares (m) Total number of shares in issue (m) Cash Flow Operating profit Depreciation & amortisation Other cash and non-cash movements Change in working capital Operating cash flow Interest Tax paid Dividends from associates and JVs Cash flow from operations Maintenance capex Free cash flow Exceptionals and discontinued operations Other financials Acquisitions Disposals Net Share Issues Dividends paid Change in net debt Net cash (debt) FCFPS - FD (c) Balance Sheet Property, plant and equipment Intangible assets Investments and other non current assets Other current assets Total assets Total debt Other long term liabilities Provisions & other current liabilities Pension deficit and other adjustments Total liabilities Shareholders' equity Minority interests Total equity Total equity and liabilities Net working capital NAV per share(c) 2010 44,262 7,024 (993) 6,031 187 (394) 5,824 328 6,152 (1,534) (354) 0 4,264 3,948 146.8 135.9 83.2 2,905 2,812 2,820 2010 6,031 993 (142) 169 7,051 (424) (1,328) 184 5,483 (1,701) 3,782 (233) (1,052) (1,252) 891 (124) (2,323) (311) (6,668) 130.2 2010 7,854 18,278 89 8,444 34,665 (6,668) 966 (11,815) (2,070) (19,587) (14,485) 593 (15,078) (34,665) (2,077) 513.6 2011 46,467 7,318 (1,029) 6,289 189 (377) 6,101 215 6,316 (1,622) (371) 0 4,323 4,114 148.7 141.5 88.2 2,908 2,816 2,824 2011 6,289 1,029 (336) (177) 6,805 (403) (1,187) 0 5,215 (1,974) 3,241 (500) (679) (1,720) 0 30 (2,485) (2,113) (8,781) 111.4 2011 8,774 21,913 (1) 9,114 39,800 (8,781) (623) (12,272) (3,203) (24,879) (14,293) 628 (14,921) (39,800) (1,857) 506.2 2012E 50,945 8,222 (1,316) 6,906 179 (500) 6,585 (70) 6,515 (1,694) (360) 0 4,461 4,515 152.5 154.3 93.2 2,926 2,826 2,834 2012E 6,906 1,316 (2) (526) 7,694 (490) (1,525) 263 5,942 (1,883) 4,059 (520) (757) (390) 0 0 (2,632) (240) (9,021) 138.7

Year end: 31 December

2013E 53,444 8,798 (1,422) 7,376 188 (478) 7,086 (10) 7,076 (1,841) (375) 0 4,860 4,870 165.6 165.9 100.1 2,936 2,836 2,844 2013E 7,376 1,422 (11) (183) 8,604 (468) (1,749) 278 6,665 (1,837) 4,828 (520) (445) 0 0 0 (2,840) 1,024 (7,997) 164.5 2014E 56,109 9,439 (1,487) 7,952 197 (418) 7,731 (10) 7,721 (2,010) (390) 0 5,321 5,331 180.6 181.0 109.2 2,946 2,846 2,854 2014E 7,952 1,487 (19) (197) 9,224 (408) (2,010) 293 7,099 (1,839) 5,259 (520) (465) 0 0 0 (3,108) 1,166 (6,831) 178.5

2012E 2013E 2014E 9,610 10,146 10,617 22,034 21,914 21,794 (85) (175) (271) 8,652 9,095 9,570 40,211 40,979 41,710 (9,021) (7,997) (6,831) (414) (457) (406) (10,986) (10,921) (10,908) (2,878) (2,508) (2,093) (23,299) (21,883) (20,237) (16,303) (18,508) (20,908) 610 589 565 (16,913) (19,097) (21,473) (40,211) (40,979) (41,710) (1,331) (1,148) (951) 575.3 650.8 732.6 Source: Company accounts/Investec Securities estimates

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Unilever PLC
Definition of research ratings for UK listed stocks Expected total return 12m performance > 10% -10% to 10% -10% Stock ratings for research produced by Investec Bank plc Coverage universe Count % of total 193 60% 103 32% 26 8% Investment banking clients Count % of total 78 40% 13 13% 0 0%
Source: Investec Securities Investec Securities bases its investment ratings on a stocks expected total return over the next 12 months (with total return defined as the expected percentage change in price plus the projected dividend yield). Our rating bands take account of differences in costs of capital, risk premia and required rates of return in the various markets that we cover. Investec Bank plc (Investec) has investment banking relationships with a number of companies covered by our Research department. In addition we may seek an investment banking relationship with companies referred to in this research. As a result investors should be aware that the firm may have a conflict of interest which could be considered to have the potential to affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Our policy on managing actual or potential conflicts of interest can be found at http://www.investec.co.uk/legal/uk/conflicts-of-interest.html

Buy Hold Sell

Buy Hold Sell

Analyst certification
Each research analyst responsible for the content of this research report, in whole or in part, and who is named herein, attests that the views expressed in this research report accurately reflect his or her personal views about the subject securities or issuers. Furthermore, no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in this research report

Third party research disclosures / Additional disclosures:

This report has been produced by a non-member affiliate of Investec Securities (US) LLC and is being distributed as third-party research by Investec Securities (US) LLC in the United States. This Report is not intended for use by or distribution to US corporations or businesses that do not meet the definition of a major institutional investor in the United States, or for use by or distribution to any individuals who are citizens or residents of the United States. Investec Securities (US) LLC accepts responsibility for the issuance of this report when distributed in the United States to entities who meet the definition of a US major institutional investor.

Unilever PLC (ULVR.L) - Ratings Plotter as of 19 Mar 12

Unilever PLC
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British American Tobacco plc (BATS.L) - Ratings Plotter as of 19 Mar 12

British American Tobacco plc
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Diageo (DGE.L) - Ratings Plotter as of 19 Mar 12

Diageo
2000 1800 1600 1400 1200 1000 800 600 400 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12

Price relative to FTSE All Share

06

Ma

Source: Investec Securities/FactSet

r1

Target Price Buy Hold Sell Not Rated

09

10

09

Au g

13

20

Jan

Jun

12

Source: Investec Securities/FactSet

Imperial Tobacco Group (IMT.L) - Ratings Plotter as of 19 Mar 12

Imperial Tobacco Group
3500 3000 2500 2000 1500 1000 500 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12

Price relative to FTSE All Share

Target Price Buy Hold Sell Not Rated

11

Jan

05

06

Ma

Source: Investec Securities/FactSet

r1

27

20 March 2012

Unilever PLC

Reckitt Benckiser (RB.L) - Ratings Plotter as of 19 Mar 12

Reckitt Benckiser
4500 4000 3500 3000 2500 2000 1500 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12

Price relative to FTSE All Share

Target Price Buy Hold Sell Not Rated

Oc t1

Jul 1

r1

16

Ap

25

14

18

Jul 1

Source: Investec Securities/FactSet

Pernod Ricard SA (RI.FP) - Ratings Plotter as of 19 Mar 12

Pernod Ricard SA
120 100 80 60 40 20 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12

Price relative to FTSE Eurofirst 300

Target Price Buy Hold Sell Not Rated

13

Source: Investec Securities/FactSet

Ma

r1

28

20 March 2012

Unilever PLC
Food Producers

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