Unilever 2003 Annual Report Download - page 23

20 Unilever Annual Report & Accounts and Form 20-F 2003
Financial review
Unilever maintains access to global debt markets through an
infrastructure of short-term debt programmes (principally US
domestic and euro commercial paper programmes) and long-term
debt programmes (principally a US Shelf registration and euro-
market Debt Issuance Programme). Debt in the international
markets is, in general, issued in the name of NV, PLC or Unilever
Capital Corporation. NV and PLC will normally guarantee such
debt where they are not the issuer.
Treasury
Unilever Treasury’s strategic purpose is to provide financial
flexibility in support of Unilever’s Path to Growth strategy and
shareholder value creation within the context of the financial
strategy set out in the ‘Finance and liquidity’ section above.
Unilever Treasury’s role is to ensure that appropriate financing is
always available for all value-creating investments. Additionally,
Treasury delivers financial services to allow operating companies
to manage their financial transactions and exposures in an
efficient, timely and low-cost manner.
Unilever Treasury operates as a service centre and is governed
by policies and plans agreed by the Executive Committee of the
Board. In addition to policies, guidelines and exposure limits, a
system of authorities and extensive independent reporting covers
all major areas of activity. Performance is monitored closely.
Reviews are undertaken by the corporate internal audit function.
The key financial instruments used by Unilever are short- and
long-term borrowings, cash and other fixed and current
investments and certain straightforward derivative instruments,
principally comprising interest rate swaps and foreign exchange
contracts. The accounting for derivative instruments is discussed
in Accounting policies on page 75. The use of leveraged
instruments is not permitted.
Other relevant disclosures are given in notes 14 and 15 on pages
94 to 98.
Unilever Treasury manages a variety of market risks, including the
effects of changes in foreign exchange rates, interest rates and
credit spreads. Further details of the management of these risks
are given on page 46.
Pensions investment strategy
The Group’s investment strategy in respect of its funded pension
plans is implemented within the framework of the various
statutory requirements of the territories where the plans are
based. The Group has developed policy guidelines for the
allocation of assets to different classes with the objective of
controlling risk and maintaining the right balance between risk
and long-term returns in order to limit the cost to the company
of the benefits provided. To achieve this, investments are well
diversified, such that the failure of any single investment would
not have a material impact on the overall level of assets. The
plans invest the largest proportion of the assets in equities which
the Group believes offer the best returns over the long term
commensurate with an acceptable level of risk. The Group also
keeps a proportion of assets invested in property, bonds and cash.
Most assets are managed by a number of external fund managers
with a small proportion managed in house.
Total Shareholder Return
Total Shareholder Return (TSR) is a concept used to compare
the performance of different companies’ stocks and shares over
time. It combines share price appreciation and dividends paid to
show the total return to the shareholder. The absolute level of the
TSR will vary with stock markets, but the relative position reflects
the market perception of overall performance relative to a
reference group.
Unilever calculates TSR over a three-year rolling period. This
period is sensitive enough to reflect changes but long enough to
smooth out short-term volatility. The return is expressed in US
dollars, based on the equivalent US dollar share price for NV and
PLC. US dollars were chosen to facilitate comparison with
companies in Unilever’s chosen reference group. The choice of
currency affects the absolute TSR but not the relative ranking.
Unilever’s TSR target is to be in the top third of a reference group
of 21 international consumer goods companies on a three-year
rolling basis.
At the end of 2002 we were positioned 12th, and during 2003
we rose to 6th, achieving our target position which remains the
top third of our reference group.
In 2003, the following companies formed the peer group of
comparative companies:
Altria Group Kao
Avon Lion
Beiersdorf L’Oréal
Cadbury Schweppes Nestlé
Clorox Orkla
Coca-Cola Pepsico
Colgate Procter & Gamble
Danone Reckitt Benckiser
Gillette Sara Lee
Heinz Shiseido
Significant changes
Any important developments and post-balance sheet events that
have occurred since 31 December 2003 have been noted in this
Annual Report & Accounts and Form 20-F 2003. Otherwise, there
have been no significant changes since 31 December 2003.
Unilever’s position relative to the TSR reference group
1999 2000 2001 2002 2003
7
14
21
The reference group, including Unilever, consists of 21 companies. Unilever’s position is
based on TSR over a three-year rolling period.