Unilever 2005 Annual Report Download - page 34

Report of the Directors
Unilever Annual Report and Accounts 2005 31
Risk management
The following discussion about risk management activities
includes ‘forward-looking’ statements that involve risk and
uncertainties. The actual results could differ materially from those
projected. See the ‘Cautionary Statement’ on page 04.
Unilever’s system of risk management is outlined on page 74.
Responsibility for establishing a coherent framework for the
Group to manage risk resides with the Boards. The remit of the
Boards is outlined on page 35.
Particular risks and uncertainties that could cause actual results to
vary from those described in forward-looking statements within
this document, or which could impact on our ability to meet our
published targets, have been identified. In this context the
following specific risks have been identified as areas of focus in
2006.
Sales and profit growth
The increasingly competitive environment, the further
consolidation in the marketplace and continued growth of
discounters could adversely impact our rate of sales growth. In
light of this, we will continue to invest in selected brands and
high growth market areas to ensure that we deliver profitable
sales growth. Our continued sales and profit 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.
Our focus will continue to be on developing our brands in ways
that are distinctive and are relevant for our customers.
We have a number of large global brands, including 12 with an
annual turnover of greater than €1 billion which often depend on
global or regional development and supply chains. Any adverse
event affecting consumer confidence or continuity of supply of
such a brand could have an impact in many markets. The carrying
value of intangible assets associated with many of our brands is
significant, and depends on the future success of those brands.
There remains a risk that events affecting one or more of our
global brands could potentially impair the value of those brands.
As the retail market place through which our products are
distributed continues to evolve, our growth and profitability can
be threatened if we do not adapt our strategies and enhance our
operational capabilities. It is important that we continue to build
and deepen relationships with our customers. Plans to raise our
effectiveness in the trade, where necessary, receive increasing
attention at all levels.
Change initiatives
The further restructuring of the business (including the
outsourcing of back office support operations and convergence of
regional processes and systems through the One Unilever
initiative) require continuing close management attention in 2006.
We have experience of managing such risks and have clear action
plans to mitigate them, including the establishment and
maintenance of project management processes to monitor
progress against milestones and targets together with appropriate
communication programmes.
People
Unilever’s performance targets require it to have the right calibre
of people at all levels. We must compete to obtain capable
recruits for the business, and then train them in the skills and
competencies that we need to deliver profitable growth. At a
time of substantial change in the business there is a particular
focus on creating alignment and energetic leadership.
Corporate reputation
Unilever has created a strong corporate reputation over many
years and many of our businesses have a high local profile. This
reputation is underpinned by ensuring that all employees embrace
the principles prescribed in our Code of Business Principles.
Unilever products carrying our well-known brand names are sold
in over 150 countries. Should we fail to meet high product safety,
social, environmental and ethical standards in all our operations
and activities, Unilever’s corporate reputation could be damaged,
leading to the rejection of our products by consumers, damage to
our brands and diversion of management time into rebuilding our
reputation. Examples of initiatives to manage key social and
environmental risks are mentioned on pages 11 and 12.
Potential economic instability
More than a third of Unilever’s turnover comes from the
developing and emerging economies. We have long experience in
these markets, which are also an important source of our growth.
These economies are typically more volatile than those in the
developed world, and there is a risk of downturns in consumer
demand that would reduce the sales of our products. We will
continue to closely monitor performance in the most volatile
markets and respond quickly to protect our business. In
cases of extreme social disruption, protecting our people is
always the priority.