Unilever 2009 Annual Report Download - page 33

Outlook and risks
The following discussion about outlook and 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 the inside
back cover.
Outlook
Market conditions for our business were particularly challenging in
2009 and we do not expect this to change significantly in 2010.
Economic pressures are likely to weigh heavily on consumer
spending. This is especially the case in some of our developed
markets where we expect unemployment to remain relatively high
and disposable incomes to be adversely impacted by the
combination of higher taxes and rising interest rates as fiscal
stimulus packages start to be unwound. Under these conditions
consumer confidence is not expected to rise significantly in the
year ahead and the search for value in the shopping basket will
continue.
Against this background we expect continued deflationary
pressure, exacerbated in the early part of the year by the
continuing impact of lower commodity costs. However we
anticipate commodity cost inflation to return around the middle of
the year, albeit at more modest levels than in recent years, and
that this will put limited upward pressure on prices in the second
half of 2010.
The competitive environment for our business is likely to intensify
further in 2010. Our key competitors, both global and local, will
be aiming to regain market share in many of our key markets and
categories and will enhance their activity plans accordingly. We
expect heightened levels of competitive challenge to our many
leadership positions based on innovation and wide-ranging brand
support. We are well prepared for such challenges.
Faced with these challenges we will continue to focus on our key
strategic priorities for 2010 of driving volume growth whilst
providing a steady improvement in operating margin before RDIs
and strong cash flow. We believe that our outstanding and long-
established presence in D&E markets is a key competitive strength
that offers us opportunities for future growth. In these markets,
per capita levels of consumption are much lower than in
developed markets, and demographic trends suggest that over the
next ten years many millions of consumers may be able to afford
our products. At the same time we are determined to grow also in
the developed world, which still represents around half of our
business.
Principal risk factors
Risks and uncertainties could cause actual results to vary from
those described in forward-looking statements made within this
document, or could impact on our ability to meet our targets or be
detrimental to our profitability or reputation. The risks that we
regard as the most relevant to our business are identified below.
We have also commented on certain mitigating actions that we
believe help us manage such risks; however, we may not be
successful in deploying some or all of these mitigating actions.
30 Unilever Annual Report and Accounts 2009
Report of the Directors About Unilever
Description of risk What we are doing to manage the risk
Economic
• Decline in business during an economic downturn
• Avoiding customer and supplier default
Unilever’s business is dependent on continuing consumer demand
for our brands. Reduced consumer wealth driven by adverse
economic conditions may result in our consumers becoming
unwilling or unable to purchase our products, which could
adversely affect our cash flow, turnover, profits and profit margins.
For example, in 2008 the economic downturn adversely impacted
our business by reducing the demand for some of our products. In
addition we have a large number of global brands, some of which
have a significant carrying value as intangible assets: adverse
economic conditions may reduce the value of those brands which
could require us to impair their balance sheet value.
During economic downturns access to credit could be constrained:
this happened in 2008 and 2009. This could impact the viability of
our suppliers and customers and could temporarily inhibit the flow
of day-to-day cash transactions with suppliers and customers via
the banks.
Adverse economic conditions may affect one or more countries
within a region, or may extend globally. The impact on our overall
portfolio will depend on the severity of the economic slowdown,
the mix of countries affected and any government response to
reduce the impact such as fiscal stimulus, changes to taxation and
measures to minimise unemployment.
The breadth of Unilever’s portfolio and our geographic reach help
to mitigate local economic risks. We carefully monitor economic
indicators and regularly model the impact of different economic
scenarios. We monitor consumer behaviour through regular market
research and adopt a flexible business model which allows us to
adapt our portfolio and respond quickly to develop new offerings
that suit consumers’ and customers’ changing needs during
economic downturns. We regularly update our forecast of business
results and cash flows and, where necessary, rebalance investment
priorities. We undertake impairment testing reviews in accordance
with the relevant accounting standards.
We regularly monitor and review the health of our customers and
suppliers and implement credit limits and supply substitution
arrangements. These reviews are undertaken more frequently
during economic downturns.