Unilever PLC - Chairman's AGM Statement

RNS No 0138m
UNILEVER PLC & NV
6th May 1998


           Speech by Niall FitzGerald, Chairman
       at the Annual General Meeting of Unilever PLC
                   Wednesday 6 May 1998

1997 was a most satisfactory year for the business overall.
We produced a set of results that were warmly welcomed by
the market.  They received a good reception because
commentators recognised within them clear indications that
we have developed the right strategy and are implementing
it vigorously.  Moreover, if we pursue it into the future,
still greater benefits will be yielded for our shareholders
and employees.

When looking at the results, we will exclude the sale of
the speciality chemicals businesses so that a meaningful
comparison can be made with 1996.  On that basis, 
worldwide sales were up 3% to nearly #32 billion.  The underlying
volume growth rate was 3.5%, which is a considerably better
performance than in recent years.

I was very pleased to see this improvement in our "top
line" performance, and the importance of top line growth is
a theme I will return to later in my remarks.

The volume improvement translated into a healthy increase
in profit.  However, to understand the profit figures
properly one must examine them at constant rates of
exchange and before exceptional items are taken into
account.  On that basis, net profits increased by 13% in
1997 than in 1996.

One of the reasons why we recorded such a satisfactory
improvement in net profit was that the margin we make on
our products - that is, the difference between our costs
and our selling price - rose across the Group by nearly one
full percentage point.  This was a considerable achievement
and is a tribute to the real progress we have made in
recent years in reducing the costs in our business -
particularly in Europe and the USA.

First Quarter Results
The benefits of this programme are now evident and indeed
can be seen in the First Quarter's results published last
Friday.

Not too much should be read into any single quarter's
results, but nevertheless they were very good numbers.  Top
line sales growth of 8% was assisted by an extra six
trading days compared to last year, but was still a
creditable performance.  The bottom line improvement of no
less than 60% at constant rates and 44% at current rates,
whilst benefiting from a positive swing in exceptional
items, is still the clearest evidence that the cost base of
the business is responding well to the investment of the
past few years.

Returning to 1997, we spent over #900 million on
acquisitions and received more than #5 billion by way of
proceeds from disposals during the year.  Of course, of
this #5 billion no less than #4.6 billion related to the
sale of our speciality chemicals businesses.

Those companies, National Starch, Quest, Unichema and
Crosfield, made a considerable contribution to Unilever's
success over the years - and I am sure they will continue
to prosper under their new ownership.  We wish them well.

I expect that you are well aware that, as a result of all
this activity, your Company is now in a very strong
financial position with a net cash surplus of some #3.2
billion at year end.  This represents not only the proceeds
of disposals but also the strong cash flows generated in
our continuing businesses throughout the year.

In 1997 it enabled us to further accelerate the re-
structuring of our businesses and the rationalisation of
our portfolio, and #600 million was set aside for this
purpose at the end of last year.  The margin improvement we
are seeing in Europe and elsewhere is the direct result of
the moves taken in recent years to eliminate waste, focus
investment and remove surplus cost.  That #600 million
exceptional charge is a direct investment in the business
and will pay handsome returns in both the short and medium
term.

We also plan to use our strong balance sheet to strengthen
the business by acquisitions, but we will be prudent and we
will be sensible.  Asset values are currently at an
historic high and we will acquire businesses only where we
believe these are clearly value enhancing and are directly
in line with our corporate strategy.

Let me now just say a few words about that corporate
strategy and the contribution it is has made to the 1997
results.

At the heart of our strategy is a core of product
categories which we think are capable of delivering
profitable growth well into the future.  There are fourteen
such product categories - all of them of universal
relevance and all of them addressing the everyday needs of
people everywhere.

They include brand names such as Magnum, Flora, Dove and
Persil, and they currently represent three-quarters of our
business - a proportion that is increasing year by year.
They performed very well in 1997 with a volume growth of 4%
and an operating margin of 10%.  This is materially more
than the other, non-corporate, categories that still remain
in our portfolio, and justifies their chosen position as
the basis of our future growth.

Although we have singled out fourteen corporate categories
as priority sectors, there are other elements to our
product portfolio and we expect these too to deliver
sustained value - most are capable of it.

But what of those that are not?  Let us be clear:
categories that are under-performing must improve or we
will dispose of them.

But if we are clear about what we are going to make and
sell, where do we expect to make and sell it?  Alongside
our fourteen priority categories, we have identified five
priority regions for growth.  These are Central and Eastern
Europe, China, India, South East Asia and South Latin
America.

On any forward looking analysis, these regions have a
population and an economic profile that means they will be
among the fastest growing in the world.  As I said last
year, we intend to be the pre-eminent fast moving consumer
goods company in these regions.  Our history gives us a
good start, but it is only a start. The potential is
enormous and we are determined to realise it.

So by way of further illustration of your Company's
development in 1997 and its priorities for 1998 and beyond,
let us take a short tour around the world, highlighting
aspects of our multi-local, multi-national activities.

Europe
Europe really contains two markets for us.  The first
comprises the mature economies of Western Europe and the
second contains the emerging Fast growing economies of
Central and Eastern Europe.

In the West we have for some years now been engaged upon
the process of renewing our operations, root and branch.
As I said before, that process will continue: you should
take that as a given. But while good housekeeping will help
secure profitability, it won't secure growth.

Growth in Western Europe must come from two sources -
extensions of the market through innovation and novelty, or
market share taken from our competitors.  Let me give you
an example that shows we are eminently capable of doing
both. One of our biggest businesses in Europe is ice cream
- a market that for many years was characterised by
traditional products, traditionally made and sold.

Our business is now run on radically different lines.  Each
season you see innovative new products targeted at a broad
range of consumers, all appearing under our new ice cream
logo. In due course I believe wherever you go in the world
you will see that single logo, and that will give a
guarantee of quality in ice cream products wherever you
are.

In Europe, this year's probable number one product will be
Winner Taco.  This was designed to appeal to the growing
numbers of adult consumers in Western Europe and was
developed at our innovation centre in Rome using the latest
techniques in ice cream manufacturing technology. It has
already been a huge success in Italy and the Netherlands
where it's in the top three with Magnum and Cornetto.
Winner Taco is now being introduced in other parts of
Europe and we expect it to grow into a #200 million brand
within two years.

Moving east to Central and Eastern Europe, we enter a world
of massive potential.  In this region there is a population
of no less than 420 million potential consumers.  The
constituent countries have a gross domestic product which
is only 10% of that of Western Europe, but the economic
reform programmes in place means that this percentage is
going to rise.

Last year I painted a picture of Unilever's margarine
lorries streaming across the Continent from factories in
the UK, the Netherlands and Germany on a single-minded
mission to fill the supermarket shelves in Russia.  Well,
you can expect some of that traffic to fall off and for the
best of all possible reasons.  In March we announced the
purchase of the Moskovsky Novod margarine business, based
in Moscow.

Having seeded the market with products from the West we are
now committing the investment necessary to make it locally.
We made our margarine brand, Rama, the Number One in only
18 months and Russia is now likely to become one of our
biggest and most successful markets for margarine anywhere
in the world.

Spectacular growth is available to us in the region - in
1997 our businesses grew by 30% - growth spread across all
categories and across all countries.

North America
Turning to North America, we find a vibrant economy where
our performance over the years has not always lived up to
our expectations.

We recognised some years ago that there was much to do if
we were to have the kind of business in North America that
we think our shareholders deserve and 1997 saw us embark
upon the latest stage of the re-organisation of our
business essential to secure that performance.

Most importantly, the results for 1997 provided clear
evidence that the work already done is now bearing fruit.
Consistent re-structuring activity has improved the overall
business performance dramatically, and operating profit
grew by 17% and margins by more than 1%.  This has been
achieved by streamlining infrastructures, sharing
activities and services, and maintaining an overall lower
cost base - all of which has made the businesses more
competitive.

The latest stage of re-organisation is now well in hand.
Our food businesses have been merged into a new single
trading entity we know as Lipton.  This was the largest
food merger we have ever undertaken, and it has been very
well managed by the team responsible.

Also in 1997 we undertook the merger of our three mass-
market home and personal care businesses.  In September we
formed Unilever Home and Personal Care USA, organised
around key product categories with the focus on innovation,
supply chain management and deepening our partnership with
major customers.  This integration will be completed by the
end of this year.

The programme was designated "the power of one".  This has
had an electrifying effect on our business and shows that
branding can be as successful within a business as it is in
terms of consumer communication.

Latin America
Unilever has been present in Latin America since the turn
of the century, but in recent years we have been steadily
building up the portfolio of businesses by acquisitions -
small, medium and large.  I think that for the last three
years Latin America has yielded the most acquisitions, at
least by number, of any of the regions in which we operate.
Last year was no exception.

The key story was the $1 billion acquisition of Kibon - the
largest ice cream company in Brazil which is, of course,
the largest market in Latin America.  This was
strategically a "must have" acquisition for Unilever and
the positive reaction that it received in the press and
among analysts was proof of that.  It was the perfect
synthesis of strategy and opportunity - a first class
business based in an emerging market, in one of our
priority regions, in one of our key corporate categories.
You can't ask for more than that!  And as a bonus, the
acquisition also gave us number one position in the
Brazilian and Latin American ice cream markets.

Asia and Pacific
The largest market here is, of course, China, with more
than a fifth of  the world's population.

In recent times we have made a good start in establishing
our businesses in China, and most of our principal
corporate categories are represented to some degree.
However, growth was not as rapid during 1997 as we might
have expected.  This was due partly to a slowing of the
Chinese economy, but also to structural and logistical
bottlenecks, some within our own businesses and some in the
economy at large.  These problems are not insoluble and the
plans we have drawn up to address them are being
implemented.

As you know, we are well represented in the tiger economies
of South East Asia.  All of these countries experienced
significant financial difficulties during the latter part
of 1997 - difficulties which for some of them still
continue.  However, if a leopard does not change its spots,
no more does a tiger change its stripes.

These countries are characterised by large, young, well-
educated populations with high aspirations.  We are
confident that in the medium term strong growth will resume
and in the meantime our commitment to long-range considered
investment in these economies is unchanged.

To the west of the tiger economies lies India - the home of
one of our most successful operations.  Hindustan Lever is
currently the largest company quoted on the Bombay Stock
Market and it enjoyed another excellent year of double
digit growth during 1997.

India is home to potentially a billion consumers.  HLL's
business is large and the market within which it operates
is growing fast. But the contribution to Unilever's success
from the countries in the Indian  subcontinent is not
merely a financial one.  There are scores of managers
employed in our operations outside the  subcontinent who
hail from that part of the world.  It is a tremendous
source of talent for our international businesses and a
considerable centre of expertise.

Africa and Middle East
In years past our African businesses have played a major
role in ensuring the continuing success of Unilever - even
in the difficult days of the early '70s when the Western
economies were in free fall as a result of the oil price
shock.

Since then the region has been somewhat overlooked by the
pundits searching the world for growth opportunities.  I
was very struck by President Clinton's remarks on his
recent visit to Africa when he drew attention to the
considerable untapped potential of the region:  it is
something we have been aware of for years.  And if the
world's attention is going to turn to that region in the
years to come, it will find us already focused and pre-
eminent in most of the major economies.

Last year saw some good progress in these regions with our
on-shore operations in the Middle East performing well and
our established businesses in Africa, East and West,
contributing to an underlying volume growth of 5%.

Well, that completes my circumnavigation of Unilever's
world:  we are international but we are local, and
everywhere the consumer is at the centre of our thinking.
We have a range of strengths, and wherever we operate we
believe we have the right strength to prosper in different
markets whose own characteristics will be different one
from the other.

It is very fashionable these days to think of the world as
a single homogenous marketplace. It really isn't like that
at all and how boring if it were! We will not succeed by
seeking to impose a standard formulation on all those
consumers:  they have every right to expect more than that
from us.

We have the ability to tailor our products and our offering
to the particular needs of consumers in their particular
location.  Certainly we will ensure that best practices
within our organisation are adopted uniformly throughout
the world, but the local consumer offering will be central
to our thinking.

I mentioned at the start of my remarks the need in our
business to secure top-line growth.  Get the sales line
growing, ensure that the business is efficiently run with
good business practices, and the profits will follow.

Now top-line growth really is about "how we go to market".
How we go to market is the defining competence of Unilever.
We are nothing if we are not marketeers.  But here consumer
expectations are undergoing  significant change and I would
like to spend a few minutes before closing in alerting you
to at least two of the changes that are afoot and
reassuring you that we are alive to them.

The first is that the consumer expects a higher level of
communication about what we are selling.  The second is
that the consumer is increasingly concerned to know that,
in the process of making and selling, we have regard to our
wider social responsibilities.

Let me take communication first.  Connecting with our
consumers is fundamental to the success of our business.
To deepen our understanding of the habits and attitudes,
needs and desires of our consumers around the world, we
invest over #150 million in market research each year.
This involves methods ranging from large-scale surveys to
informal individual interviews or focus groups, as they are
known.  We are reaching out to consumers wherever they live
- whether it is in the remote villages in North East Brazil
to give us a better understanding of local laundry habits,
or in the nightclubs of London, to listen to the views of
young people about deodorants and fragrances.

And the results have direct application.  You will be
interested to hear that our research in cities like London
led to a break through in advertising for brands such as
Lynx and Axe.  Indeed, thanks to innovative marketing and
advertising Lynx and Axe is now the world's leading male
deodorant.

You cannot be at the forefront of marketing on market
research and advertising alone. It will guarantee a good
response to consumer need but it cannot guarantee that you
will be at the leading edge of understanding and
communication.  Markets around the world differ: in some,
the simplest forms of communication - wall paintings,
travelling demonstrators and direct selling - are the most
effective means of reaching newly enfranchised consumers.

In other markets, the rapid development of electronic media
offers exciting new ways to reach consumers both to
communicate our message and, just as importantly, to learn
from those consumers what they either want now or will want
in the future.

Therefore, for Unilever, a key interest in the Internet
lies in its electronic marketing potential.  We recognised
this as long ago as 1993 and since then have been
investigating opportunities and investing significant sums
in interactive projects, facilitating that two-way
communication between ourselves and our consumers.

As we develop our skills in this area we are also urging
our advertising agencies to do the same.  For the past 40
years we have concentrated on the 30-second television
advertisement and, although the medium continues to serve
us well, the electronic revolution, the worldwide web and
the personal computer now give us the opportunity to speak
to the consumer one-to-one.  We want to speak to our
consumers as individuals and to hear what they have to say,
and now we are beginning to have the means to do it.

North America is one of the key regions leading these
developments - a logical choice as, by the year 2000,
almost 40% of US households will be "on line".

All our US operations now have web sites where products are
displayed, and a dialogue is conducted with the consumer -
for example on how to care for their skin, or how to
prepare an exciting recipe for the evening meal.

It's an exciting prospect and in recognition of this we
have sponsored a range  of initiatives throughout our
operations in Europe, North America and elsewhere.  Our
young marketeers are working hard on this project:  their
ambition is to create a secure role for Unilever in the new
world of marketing and to ensure that we are able to
conduct the dialogue our consumers are coming to expect.

But our consumers don't just want information about our
products:  they want information about how we go about
doing business and now require assurance  that we are doing
this in a socially responsible way.

Whether it is in the realms of corporate governance, the
conduct of our business, or the pursuit of our commitment
to sustainable development, we are determined that best
practice will guide our every action.

Three years ago we published our Code of Business
Principles and in 1997 our Statement of Corporate Purpose.
The Business Principles form the bedrock of how we conduct
our business;  our Corporate Purpose the values we hold.
They are working business documents for all our people
around the world.

We believe that creating value for our shareholders,
consumers and employees through profitable growth is
compatible with sustainable development, by which I mean,
"meeting the needs of the present without compromising
resources for  future generations".

We have examined the areas where we can most effectively
contribute and in 1997 agreed on three key areas for
priority action.   These are respectively conserving
fisheries, sustainable agriculture and clean water
stewardship.

We have already begun in the area of fishing through the
formation of a conservation partnership with the Worldwide
Fund for Nature.  This led last year to the establishment
of the Marine Stewardship Council, whose aim is to use
market forces and the power of consumer choice to encourage
sustainable fishing.

The progress we have made is reported in our Second
Environmental Report published this year.  This has been
independently verified by external experts.  It emphasises
two aspects of our work:  environmental management and the
total potential impact of our business on the environment.
We will manage both in the interests of future generations.

Well, now that I have spoken so much about two-way
communication it will shortly be time for me to give you
your chance. I hope that in my remarks this morning I have
illustrated the fact that, while we can be justifiably
proud of what we are achieving at present, the eyes of the
organisation are firmly fixed on the future.

We have a clear Corporate Strategy in terms of both
products and geography. The new organisation, with its
focus on operational effectiveness, is in place and working
well.  Our Corporate Purpose is penetrating the
organisation and guides its ambitions.

Our results in 1997 are the evidence that these elements
are coming together to drive the return to shareholders.

Last Friday, following publication of our first quarter
results, the market value of your company exceeded #50
billion.  That is an increase of more than 50% on when we
met in this hall last year.

The thousands of men and women who are employed in the
service of Unilever and are responsible for its continuing
success are all clear on what they want to do and how they
want to do it.  Your Board is determined to provide them
with the opportunity to achieve the success they and you
deserve.

END


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