Annual Financial Report

RNS Number : 6296Y

Unilever PLC

02 March 2012

 



Unilever PLC ("Unilever")

2 March 2012

2011 Annual Financial Report Announcement

2 March 2012

Unilever announces that as from today the following documents are available on its website www.unilever.com/investorrelations :

Unilever Annual Report and Accounts 2011

Unilever Annual Report on Form 20-F 2011

A copy of each of the documents listed has been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm.do

Attached to this announcement is the additional information for the purposes of compliance with the Disclosure and Transparency Rules including principal risk factors, details of related party issues and a responsibility statement.

ADDITIONAL INFORMATION

Principal Risk Factors

Our business is subject to risks and uncertainties. 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 to manage these risks. However, we may not be successful in deploying some or all of these mitigating actions. If the circumstances in these risks occur or are not successfully mitigated, our cashflow, operating results, financial position, business and reputation could be materially adversely affected. In addition risks and uncertainties could cause actual results to vary from those described herein in the descriptions below, which may include forward-looking statements, or could impact on our ability to meet our targets or be detrimental to our profitability or reputation.

Description of Risk	What we are doing to manage the risk
Consumer Preference
As a branded goods business, Unilever's success depends on the value and relevance of our brands and products to consumers across the world and on our ability to innovate. Consumer tastes, preferences and behaviours are constantly changing and Unilever's ability to respond to these changes and to continue to differentiate our brands and products is vital to our business. We are dependent on creating innovative products that continue to meet the needs of our consumers.	We continuously monitor external market trends and collate consumer, customer and shopper insight in order to develop category and brand strategies. Our Research and Development function actively searches for ways in which to translate the trends in consumer preference and taste into new technologies for incorporation into future products. Our innovation management process deploys the necessary tools, technologies and resources to convert category strategies into projects and category plans, develop products and relevant brand communication and successfully roll out new products to our consumers.
Competition
The activities of our competitors may adversely impact our business. Unilever operates globally in competitive markets where other local, regional and global companies are targeting the same consumer base. Our retail customers frequently compete with us through private label offerings. Industry consolidation amongst our direct competitors and in the retail trade can bring about significant shifts in the competitive landscape.	Our strategy focuses on investing in markets and segments which we identify as attractive because we have already built, or are confident that we can build, competitive advantage. We continue to monitor developments in our markets across the world and to direct our resources accordingly to respond to competitive threats and opportunities.
Portfolio Management
Unilever's strategic investment choices will determine the long-term growth and profits of our business. Unilever's growth and profitability are determined by our portfolio of categories, geographies and channels and how these evolve over time.	Our Compass strategy and our business plans are designed to ensure that resources are prioritised towards those categories and markets having the greatest long term potential for Unilever. Our acquisition activity is driven by our portfolio strategy with a clear, defined evaluation process.
Sustainability
The success of our business depends on finding sustainable solutions to support long-term growth. Unilever's vision to double the size of our business while reducing our environmental impact will require more sustainable ways of doing business. This means increasing the positive social benefits of Unilever's activities while reducing our environmental impact.	The Unilever Sustainable Living Plan sets clear long-term commitments for health and well-being, environmental impact and enhancing livelihoods. These are underpinned by specific targets in areas such as sustainable sourcing, water availability and usage, waste and greenhouse gases. The Unilever Sustainable Development Group, comprising five external specialists in corporate responsibility and sustainability, monitors the execution of this strategy. Progress towards the Unilever Sustainable Living Plan is monitored by the Unilever Leadership Executive and the Boards.
Customer Relationships
Successful customer relationships are vital to our business and continued growth. Maintaining strong relationships with our customers is necessary for our brands to be well presented to our consumers and available for purchase at all times. The strength of our customer relationships also affects our ability to obtain pricing and secure favourable trade terms.	We build and maintain trading relationships across a broad spectrum of channels ranging from centrally managed multinational customers through to small traders accessed via distributors in many developing countries. We develop joint business plans with all our key customers that include detailed investment plans and customer service objectives and we regularly monitor progress. We have developed capabilities for customer sales and outlet design which enable us to find new ways to improve customer performance and enhance our customer relationships.
People
A skilled workforce is essential for the continued success of our business. Our ability to attract, develop and retain the right number of appropriately qualified people is critical if we are to effectively compete and grow. This is especially true in our key emerging markets where there can be a high level of competition for a limited talent pool.	Resource committees have been established and implemented throughout our business. These committees have responsibility for identifying future skills and capability needs, developing career paths and identifying the key talent and leaders of the future. We have an integrated management development process which includes regular performance reviews underpinned by a common set of leadership behaviours, skills and competencies. We have targeted programmes to attract and retain top talent and we actively monitor our performance in retaining talent within Unilever.
Supply Chain
Our business depends on securing high quality materials, efficient manufacturing and the timely distribution of products to our customers. Our supply chain network is exposed to potentially adverse events such as physical disruptions, environmental and industrial accidents or bankruptcy of a key supplier which could impact our ability to deliver orders to our customers. The quality and safety of our products are of paramount importance for our brands and our reputation. The cost of our products can be significantly affected by the cost of the underlying commodities and materials from which they are made. Fluctuations in these costs cannot always be passed on to the consumer through pricing.	We have contingency plans designed to enable us to secure alternative key material supplies at short notice, to transfer or share production between manufacturing sites and to use substitute materials in our product formulations and recipes. These contingency plans also extend to an ability to intervene directly to support a key supplier should it for any reason find itself in difficulty or be at risk of negatively affecting a Unilever product. We have policies and procedures designed to ensure the health and safety of our employees and the products in our facilities and to deal with major incidents or crises including business continuity and disaster recovery. Our product quality controls are extensive and are regularly tested to ensure that they are effective. All of our key suppliers are periodically reviewed to ensure they meet the rigorous quality standards that our products demand. Commodity price risk is actively managed through forward-buying of traded commodities and other hedging mechanisms. Trends are monitored and modelled regularly and integrated into our forecasting process.
Systems and Information
Unilever's operations are increasingly dependent on IT systems and the management of information. We interact electronically with customers, suppliers and consumers in ways which place ever greater emphasis on the need for secure and reliable IT systems and infrastructure and careful management of the information that is in our possession. This also increases the threat from unauthorised access and misuse of sensitive information.	Hardware that runs and manages core operating data is fully backed up with separate contingency systems to provide real time backup operations should they ever be required. We maintain a system of control at all times for access to our important information. Our policies on data access, privacy and protection of information are regularly reviewed and our employees are trained to understand the requirements.
Business Transformation
Successful execution of business transformation projects is key to delivering their intended business benefits and avoiding disruption to other business activities. Unilever is continually engaged in major change projects, including acquisitions and disposals, to drive continuous improvement in our business and to strengthen our portfolio and capabilities. In 2011, this included several significant acquisitions (Alberto Culver, Concern Kalina), IT system implementations, the roll-out of Enterprise Support and changes to our management organisation.	All acquisitions, disposals and global restructuring projects are sponsored by a Unilever Leadership Executive member. Regular progress updates are provided to the Unilever Leadership Executive. Sound project disciplines are used in all merger, acquisitions and restructuring projects and these projects are resourced by dedicated and appropriately qualified personnel. Unilever also monitors the volume of change programmes underway in an effort to stagger the impact on current operations and to ensure minimal disruption.
External economic and political risks, and natural disasters
Unilever operates across the globe and is exposed to a range of external economic and political risks and natural disasters that may affect the execution of our strategy or the running of our operations. Adverse economic conditions may result in reduced consumer demand for our products, and may affect one or more countries within a region, or may extend globally. Government actions such as fiscal stimulus, changes to taxation and price controls can impact on the growth and profitability of our local operations. Social and political upheavals and natural disasters can disrupt sales and operations. In 2011, more than half of Unilever's turnover came from emerging markets including Brazil, India, Indonesia, Turkey, South Africa, China, Mexico and Russia. These markets offer greater growth opportunities but also expose Unilever to economic, political and social volatility in these markets. Eurozone risk Issues arising out of the sovereign debt crisis in Europe could have a material adverse effect on Unilever's business in a number of ways. Uncertainty, lack of confidence and any further deterioration in the situation could lead to lower growth and even recession in Europe and elsewhere. Our operations would be affected if Eurozone countries were to leave the euro. In particular: ·     our European supply chain would face economic and operational challenges; ·     our customers and suppliers may be adversely affected, leading to heightened counterparty credit risk; and ·     our investment in the country concerned could be impaired and may be subject to exchange controls and translation risks going forward. The likely contraction in the availability of credit from financial institutions and the impact this will have on Unilever's liquidity risk are described under 'Financial' below.	The breadth of Unilever's portfolio and our geographic reach help to mitigate our exposure to any particular localised risk to an extent. Our flexible business model 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 have continuity planning designed to deal with crisis management in the event of political and social events and natural disasters. We believe that many years of exposure to emerging markets has given us experience operating and developing our business successfully during periods of economic, political or social change. Unilever is committed to maintaining its operations in all European countries. We have conducted scenario planning in respect of a Eurozone break-up, or of countries leaving the Eurozone, and this has been reviewed by the Boards. We are taking measures designed to minimise the impact of the potential scenarios whilst continuing to trade as normal, including: ·     developing contingency plans in respect of our supply chain operations; ·     exercising additional caution with our counterparty exposures; ·     taking prudent balance sheet measures in relation to high risk countries; and ·     strengthening our short term liquidity positions.
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.

RELATED PARTY TRANSACTIONS

The following related party balances existed with associate or joint venture businesses at 31 December:

Related party balances	€ million 2011	€ million 2010
Trading and other balances due from joint ventures	243	233
Trading and other balances due from/(to) associates	-	-

Joint ventures

Sales by Unilever group companies to Unilever Jerónimo Martins and Pepsi Lipton International were €100 million and €11 million in 2011 (2010: €83 million and €12 million) respectively. Sales from Jerónimo Martins to Unilever group companies were €45 million in 2011 (2010: €43 million). Balances owed by/(to) Unilever Jerónimo Martins and Pepsi Lipton International at 31 December 2011 were €244 million and €0.7 million (2010: €233 million and €0.3 million) respectively.

Associates

Langholm Capital Partners invests in private European companies with above-average longer-term growth prospects. Since the Langholm I Fund was launched in 2002, Unilever has invested €83 million in Langholm I, with an outstanding commitment at the end of 2011 of €2 million. Unilever has received back a total of €130 million in cash from its investment in Langholm I.

Langholm Capital Partners II was launched in 2009 Unilever has invested €25 million in Langholm II, with an outstanding commitment at the end of 2011 of €50 million.

Physic Ventures is an early stage venture capital fund based in San Francisco, focusing on consumer-driven health, wellness and sustainable living. Unilever has invested €44 million in Physic Ventures since the launch of the fund in 2007. At 31 December 2011 the outstanding commitment with Physic Ventures was €26 million.

DIRECTORS' RESPONSIBILITY STATEMENT

Each of the Directors confirms that, to the best of his or her knowledge:

• The financial statements which have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and as issued by the International Accounting Standards Board (in the case of the consolidated financial statements) and United Kingdom accounting standards (in the case of the PLC parent company accounts) and United Kingdom accounting standards and Part 9 of Book 2 of the Dutch Civil Code (in the case of the NV parent company accounts), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the NV and PLC entities taken as a whole.

• The Report of the Directors includes a fair review of the development and performance of the business and the position of the Group and the NV and the PLC entities taken as a whole, together with a description of the principal risks and uncertainties they face.

Name	Function
Michael Treschow Kees Storm Paul Polman Jean-Marc Huët Louise Fresco Ann Fudge Charles Golden Byron Grote Hixonia Nyasulu Sunil B Mittal Sir Malcolm Rifkind Paul Walsh	Chairman Vice-Chairman Chief Executive Officer Chief Financial Officer Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director

Safe Harbour

This announcement may contain forward-looking statements, including 'forward-looking statements' within the meaning of the United States Private Securities Litigation Reform Act of 1995. Words such as 'will', 'aim', 'expects', 'anticipates', 'intends', 'believes', 'vision', or the negative of these terms and other similar expressions of future performance or results, and their negatives, are intended to identify such forward-looking statements. These forward-looking statements are based upon current expectations and assumptions regarding anticipated developments and other factors affecting the Group. They are not historical facts, nor are they guarantees of future performance. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including, among others, competitive pricing and activities, economic slowdown, industry consolidation, access to credit markets, recruitment levels, reputational risks, commodity prices, continued availability of raw materials, prioritisation of projects, consumption levels, costs, the ability to maintain and manage key customer relationships and supply chain sources, consumer demands, currency values, interest rates, the ability to integrate acquisitions and complete planned divestitures, finalising fair values related to prior acquisitions, the ability to complete planned restructuring activities, physical risks, environmental risks, the ability to manage sustainability, regulatory, tax and legal matters and resolve pending matters within current estimates, legislative, fiscal and regulatory developments, political, economic and social conditions in the geographic markets where the Group operates, completion of the Sustainable Development Report 2011 and new or changed priorities of the Boards. Further details of potential risks and uncertainties affecting the Group are described in the Group's filings with the London Stock Exchange, Euronext Amsterdam and the US Securities and Exchange Commission, including the Group's Annual Report on Form 20-F for the year ended 31 December 2011 and the Annual Report and Accounts 2011. These forward-looking statements speak only as of the date of this announcement. Except as required by any applicable law or regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

2 March 2012

 

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