Unilever 2001 Annual Report Download - page 35

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Unilever Annual Report & Accounts and Form 20-F 2001
>32
FINANCIAL REVIEW
Foreign exchange rate risk
The fair value of debt, investments and hedging
instruments, denominated in currencies other than the
functional currency of the entities holding them, are
subject to exchange rate movements. The analysis shows
the sensitivity of these fair values to a hypothetical 10%
change in foreign exchange rates as at 31 December 2001.
Fair value changes
Sensitivity to a hypothetical
10% adverse movement in
rates as at 31 December
million million
2001 2000
Interest rate risk 243 338
Foreign exchange rate risk 28 1
Further details on derivatives, foreign exchange exposures
and other related information on financial instruments are
given in note 15 on page 68.
Supply risk and commodities contracts
Unilever’s products are manufactured from a number
of raw materials. While materials are expected to be in
adequate supply, any shortages or disruptions in supply
would have a material adverse effect on gross margin.
Some of our businesses, principally edible fats companies
in Europe, may use forward contracts over a number of
oils to hedge future requirements. We purchase forward
contracts in bean, rape, sunflower, palm, coconut and
palm kernel oils, almost always for physical delivery.
We may also use futures contracts to hedge future price
movements; however, the amounts are not material.
The total value of open futures contracts at the end
of 2001 was not material.
In addition, our plantations businesses may use forward
contracts for physical delivery of palm oil and tea under
strictly controlled policies and exposure limits. We had no
material outstanding futures contracts at the end of 2001.
Distribution
Unilever’s products are generally sold through its sales force
and through independent brokers, agents and distributors
to chain, wholesale, co-operative and independent
grocery accounts, foodservice distributors and institutions.
Products are distributed through distribution centres,
satellite warehouses, company-operated and public storage
facilities, depots and other facilities.
Unilever has undertaken several initiatives to work with
its customers to accelerate the development of product
categories, to optimise the flow of merchandise and the
inventory levels of its customers. These include efficient
consumer response (ECR) to achieve optimal stock
management, automatic stock replenishments and just-
in-time delivery using electronic data interchange (EDI)
to co-ordinate stock levels in stores and at Unilever’s
warehouses. ECR is also a process used by Unilever and
retailers to understand, and deliver against, consumer
demand and expectations.
Impact of price changes
Information concerning the impact of price changes on
tangible fixed assets and depreciation is shown in note 10
on page 65.
Risk factors
Particular risks and uncertainties that could cause actual
results to vary from those described in forward-looking
statements within this Annual Report & Accounts and Form
20-F 2001, or which could impact on our ability to meet
our published targets under the Path to Growth strategy –
which consists of focusing resources on leading brands,
closing manufacturing sites and re-organising or divesting
under-performing businesses – include those previously
described on pages 31 and 32 and the following:
> Delivering the benefits of recent acquisitions:
In recent years Unilever has acquired a number of
businesses around the world, including Bestfoods.
Growth by acquisition carries the risk of delays in
completing integration and realising the required
synergies.
> Managing restructuring and reorganisation programmes:
Unilever has announced wide-ranging business
restructuring initiatives, and has recently undergone a
reorganisation to create two Divisions encompassing all
operations around the world. This high level of change
absorbs considerable management time and can interrupt
normal business operations.
> Innovation:
Our growth depends in large part on our ability to
generate and implement a stream of consumer-relevant
improvements to our products. The contribution of
innovation is affected by the level of funding that can be
made available, the technical capability of the research
and development functions, and the success of operating
management in rolling out quickly the resulting
improvements.
> Cost reductions:
Unilever has a range of programmes to reduce its
product costs and overhead expenses. In addition to the
restructuring programme mentioned above, these include
a Group-wide buying initiative, and a programme to
create shared-service centres around the world.
Realisation of the planned savings and efficiencies is
important to provide funds for business growth.
.