Unilever 2011 Annual Report Download - page 35

32
RISKS continued
Description of risk What we are doing to manage the risk
Financial
Unilever is exposed to a variety of external financial risks.
Changes to the relative value of currencies can fluctuate widely
andcould have a significant impact on business results. Further,
because Unilever consolidates its financial statements in euros it
issubject to exchange risks associated with the translation of the
underlying net assets and earnings of its foreign subsidiaries.
We are also subject to the imposition of exchange controls by
individual countries which could limit our ability to import materials
paid in foreign currency or to remit dividends to the parent company.
Currency rates, along with demand cycles, can also result in
significant swings in the prices of the raw materials needed to
produce our goods.
Unilever may face liquidity risk, i.e. difficulty in meeting its
obligations, associated with its financial liabilities. A material and
sustained shortfall in our cash flow could undermine Unilever’s
credit rating, impair investor confidence and also restrict Unilever’s
ability to raise funds.
We are exposed to market interest rate fluctuations on our floating rate
debt. Increases in benchmark interest rates could increase the interest
cost of our floating rate debt and increase the cost of future borrowings.
In times of financial market volatility, we are also potentially exposed
to counter party risks with banks, suppliers and customers.
Certain businesses have defined benefit pension plans, most now
closed to new employees, which are exposed to movements in
interest rates, fluctuating values of underlying investments and
increased life expectancy. Changes in any or all of these inputs could
potentially increase the cost to Unilever of funding the schemes and
therefore have an adverse impact on profitability and cash flow.
Currency exposures are managed within prescribed limits and by
theuse of forward foreign exchange contracts. Further, operating
companies borrow in local currency except where inhibited by local
regulations, lack of local liquidity or local market conditions. We also
hedge some of our exposures through the use of foreign currency
borrowing or forward exchange contracts.
Our interest rate management approach aims to achieve an optimal
balance between fixed and floating rate interest exposures on
expected net debt.
We seek to manage our liquidity requirements by maintaining
accessto global debt markets through short-term and long-term
debt programmes. In addition, we have high committed credit
facilities for general corporate purposes.
Group Treasury regularly monitors exposure to our banks, tightening
counter party limits where appropriate. Unilever actively manages its
banking exposures on a daily basis.
We regularly assess and monitor counterparty risk in our customers
and take appropriate action to manage our exposures.
Our pension investment standards require us to invest across a range
of equities, bonds, property, alternative assets and cash such that the
failure of any single investment will not have a material impact on the
overall value of assets.
The majority of our assets, including those held in our ‘pooled’
investment vehicle, Univest, are managed by external fund managers
and are regularly monitored by pension trustees and central pensions
and investment teams.
Further information on financial instruments and capital and treasury
risk management is included in note 16 on pages 94 to 100.
Ethical
Acting in an ethical manner, consistent with the expectations of
customers, consumers and other stakeholders is essential for the
protection of the reputation of Unilever and its brands.
Unilever’s brand and reputation are valuable assets and the way in
which we operate, contribute to society and engage with the world
around us is always under scrutiny both internally and externally.
Our Code of Business Principles and our Code Policies govern the
behaviour of our employees, suppliers, distributors and other third
parties who work with us.
Our processes for identifying and resolving cases of unethical
practice are clearly defined and regularly communicated throughout
Unilever. Data relating to instances of unethical practice is reviewed
by the Unilever Leadership Executive and by relevant Board
committees and helps to determine the allocation of resources for
future policy development, training and awareness initiatives.
Legal, Regulatory and Other
Compliance with laws and regulations is an essential part of
Unilever’s business operations.
Unilever is subject to local, regional and global laws and regulations
in such diverse areas as product safety, product claims,
trademarks, copyright, patents, competition, employee health and
safety, the environment, corporate governance, listing and
disclosure, employment and taxes.
Failure to comply with laws and regulations could expose Unilever to
civil and/or criminal actions leading to damages, fines and criminal
sanctions against us and/or our employees with possible
consequences for our corporate reputation.
Changes to laws and regulations could have a material impact on
the cost of doing business.
Unilever is also exposed to varying degrees of risk and uncertainty
related to other factors including environmental, political, social and
fiscal risks. All these risks could materially affect Unilever’s
business. There may be other risks which are unknown to Unilever
or which are currently believed to be immaterial.
The Code of Business Principles sets out our commitment to
complying with the laws and regulations of the countries in which we
operate. In specialist areas the relevant teams at global, regional or
local level are responsible for setting detailed standards and ensuring
that all employees are aware of and comply with regulations and laws
specific and relevant to their roles.
Our legal specialists are heavily involved in monitoring and reviewing
our practices to provide reasonable assurance that we remain aware
of and in line with all relevant laws and legal obligations.
Various mitigating processes exist within Unilever operating systems
designed to help to mitigate other areas of risk including terrorism,
fiscal and other forms of regulatory change or economic instability.
Unilever Annual Report and Accounts 2011
Report of the Directors About Unilever