Unilever 2007 Annual Report Download - page 16

14 Unilever Annual Report and Accounts 2007
Report of the Directors continued
Outlook and risks continued
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 continuing restructuring of the business which is designed to
simplify our operations and leverage our scale more effectively,
includes outsourcing back office support operations, forming
multi-country organisations and converging regional processes
and systems. Building on the experiences of 2007, we will
continue to manage the risks in this area diligently and develop
clear action plans in an attempt to mitigate these risks. Key to this
is 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.
Potential economic instability
Around 44% 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
monitor closely performance in the most volatile markets and
respond quickly in an effort to protect our business. In cases of
extreme social disruption, protecting our people is always the
priority.
Price and supply of raw materials and
commodities contracts
We faced significant increases in the cost of various commodities
and raw and packing materials throughout the year. We have
been able to substantially mitigate these through a combination
of price increases, supply chain savings and mix improvements.
We see a trend of increasing commodity prices going into 2008.
In addition to our ongoing actions to mitigate these risks, and
where appropriate, we purchase forward contracts for raw
materials and commodities. Where appropriate, we also use
futures contracts to hedge future price movements, however, the
amounts are not material.
Insurance of risks
As a multinational group with diverse product offerings and
operations in around 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;
• market 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 17 on
pages 100 and 101 and note 20 on page 105.
Other risks
Unilever’s businesses are exposed to varying degrees of risk and
uncertainty related to other factors including competitive 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.