Unilever 2005 Annual Report Download - page 35
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32 Unilever Annual Report and Accounts 2005
Risk management
(continued)
Price and supply of raw materials and commodities
contracts
Where appropriate, we purchase forward contracts for raw
materials and commodities, almost always for physical delivery.
We may also use futures contracts to hedge future price
movements; however, the amounts are not material. With the
adoption of IFRSs from 1 January 2005, we are required to
recognise financial derivatives (which include forward contracts)
at their fair value on the balance sheet.
Insurance risks
As a multinational group with diverse product offerings and
operations in more than 100 countries, Unilever is subject to
varying degrees of risk and uncertainty. It does not take out
insurance against all risks and retains a significant element of
exposure to those risks against which it does insure. However, it
insures its business assets in each country against insurable risks
as it deems appropriate.
Financial risks
In addition to the above, Unilever is exposed to various specific
risks in connection with its financial operations and results. These
include the following:
• The impact of movement in equity markets, interest rates and
life expectancy on net pension liabilities;
• Maintenance of group cash flows at an appropriate level;
• Exposure of debt and cash positions to changes in interest rates;
• Potential impact of changes in exchange rates on the group’s
earnings and on the translation of its underlying net assets;
• Liquidity and counterparty risks; and
• Risks associated with the holding of our own shares in
connection with share-based remuneration schemes.
Further information about these, including sensitivity analysis to
changes in certain of the key measures, is given in note 2 on
pages 86 and 87 and note 22 on page 114.
Other risks
Unilever’s businesses are exposed to varying degrees of risk and
uncertainty related to other factors including competitive pricing,
commodity, raw and packaging material pricing, consumption
levels, physical risks, legislative, fiscal, tax and regulatory
developments, terrorism and economic, political, and social
conditions in the environments where we operate. All of these
risks could materially affect the Group’s business, our turnover,
operating profit, net profit, net assets and liquidity. There may be
risks which are unknown to Unilever or which are currently
believed to be immaterial.