Unilever 2008 Annual Report Download - page 30

Unilever Annual Report and Accounts 2008 27
Report of the Directors
Outlook and risks continued
Further information about these, including sensitivity analysis to
changes in certain of the key measures, is given in note 17 on
pages 108 and 110 and note 20 on page 115.
Exposure to Developing and Emerging (D&E) markets
Unilever has significant international operations, with close to half
its business in D&E markets, and whilst its diverse geographical
spread helps ensure it is not reliant on a single region or country,
it is continually exposed to changing economic, political and social
developments outside its control. D&E markets are typically more
volatile than those in the developed world, and any broad-based
downturn in these markets could reduce our sales and adversely
affect our cash flow and profits. In mitigation, Unilever has long
experience and understanding of D&E markets and how to
manage effectively at times of economic turbulence.
Input costs, supplier and supply chain reliance
Manufacturing our products is dependent on obtaining adequate
supplies of production materials in a timely and cost effective
manner. The prices of these, which are significantly influenced by
global economic conditions, can fluctuate and could have an
impact on our margins and cash flows. Our management of these
fluctuations is important in terms of our overall cost
competitiveness and management of margins and cash flows.
We are also dependent on suppliers and global supply chains as a
means of producing and supplying our products. As a result of
our reliance on these global supply chains, we are exposed to
business interruption from natural disasters or catastrophes and
through additional risks of changes in local legal and regulatory
schemes, labour shortages and disruptions from environmental
and industrial incidents.
In the current climate we also face a counterparty risk from our
suppliers. Active monitoring of our suppliers and supply chain is in
place, and regular supplier counterparty risk analysis is carried out
to assess exposure limits. We plan to continue to work closely
with our key suppliers in mitigating the impact of the lack of
liquidity in the market. We intend to continue to purchase
forward contracts for raw materials and commodities as
appropriate.
Unilever actively monitors its external environment, reviews and
revisits its business continuity and disaster recovery plans, and
continues to adapt its internal cost structures to deliver products
at competitive costs. We continue to actively manage fluctuations
in input costs and are accelerating our cost reduction
programmes.
Safety, sustainability and environment
Unilever has created a strong corporate reputation over many
years for its focus on social and environmental issues, including
sustainable development and utilisation of renewable sources. The
Unilever brand on our products increases our exposure, and
should we fail to meet high product safety, social, environmental
and ethical standards in all our operations and activities it could
impact our reputation.
We seek to demonstrate our commitment to our people and the
communities that we operate in through compliance with our
Code of Business Principles and other operational and business
policies.
We continue to recognise the importance of social and
environmental issues in our operations, and have established
indicators to track performance in these areas. We regard safety
as an essential element of a successful and sustainable business
and take seriously our responsibility to provide a safe workplace.
We aim to improve continuously the health, safety and well-being
of everyone working for, or on behalf of, Unilever.
We continue to be committed to meeting the needs of consumers
in an environmentally sound and sustainable manner. The
environmental measures that we regard as the most significant in
relation to our business are those relating to the amounts of CO2
emissions from energy that we consume for manufacturing, the
water that we consume in our production processes, and the
amount of waste that we generate.
The Corporate Responsibility and Reputation Committee oversees
Unilever’s conduct as a responsible corporate citizen. For the
report of the committee please see page 75.
Restructuring and changes to the way we operate
Restructuring is an integral part of remaining competitive, and this
can involve changes to internal structures, the rationalisation of
the asset base, and the use of third parties to deliver business
services.
Restructuring and outsourcing programmes have been particularly
intense over the last few years, and the continuing
implementation of these will require significant effort and
attention in order to deliver the expected benefits on time and in
full. Delays, ineffective management of third-party suppliers, or
employee disruption of restructuring programmes could all lead to
increased cost, a delay in realising benefits, and damage to
corporate reputation. We continue to mitigate these risks through
strong project management, clear governance mechanisms, an
agreed approach to change management, and by ensuring we
treat employees in line with our internal standards and in
accordance with all legal and regulatory requirements.
People and talent
Attracting and retaining talented employees is essential to the
successful delivery of our strategy and success in the marketplace.
Shortfalls in recruitment or retention could adversely affect our
ability to operate successfully, grow our business and win against
competition.
To counter the risk, we believe in providing an environment where
individuals can achieve their goals, both professionally and
personally, and by seeking to ensure that Unilever has the right
resources and capabilities to compete effectively. We have fully
integrated processes of appraisal against skill profiles, capabilities,
and achievement of business objectives, and we also make
investments in training and development which are aimed at
equipping our people for the challenges in their roles. We
constantly review external candidates to ensure we enrich and
augment our home-grown talent.
Other risks
In common with other businesses, the Group is exposed to a
number of other risks, some of which may have a material impact
on its turnover, operating profit, net assets and liquidity. It is not
possible to identify or anticipate every risk that may affect the
Group, some of which may currently not be known or may have
been assessed as not material.