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UNILEVER
PLC
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/S/ R SOTAMAA
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BY R SOTAMAA
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CHIEF LEGAL OFFICER AND GROUP SECRETARY
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EXHIBIT
NUMBER
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EXHIBIT
DESCRIPTION
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99
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Notice
to London Stock Exchange dated 11 March 2019
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Annual Financial Report
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DESCRIPTION OF RISK
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BRAND PREFERENCE
As a
branded goods business, Unilever’s success depends on the
value and relevance of our brands and products to consumers around
the world and on our ability to innovate and remain
competitive.
Consumer
tastes, preferences and behaviours are changing more rapidly than
ever before, and Unilever’s ability to identify and respond
to these changes is vital to our business success.
Technological
change is disrupting our traditional brand communication models.
Our ability to develop and deploy the right communication, both in
terms of messaging content and medium is critical to the continued
strength of our brands.
We are
dependent on creating innovative products that continue to meet the
needs of our consumers and getting these new products to market
with speed. If we are unable to innovate effectively,
Unilever’s sales or margins could be materially adversely
affected.
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PORTFOLIO MANAGEMENT
Unilever’s
strategic investment choices will affect 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. If Unilever does not make optimal strategic investment
decisions, then opportunities for growth and improved margin could
be missed.
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SUSTAINABILITY
The
success of our business depends on finding sustainable solutions to
support long-term growth.
Unilever’s
vision to grow our business, while decoupling our environmental
footprint from our growth and increasing our positive social
impact, will require more sustainable ways of doing
business.
In a
world where resources are scarce and demand for them continues to
increase, it is critical that we succeed in reducing our resource
consumption and converting to sustainably sourced
supplies.
In
doing this we are dependent on the efforts of partners and various
certification bodies. We are also committed to improving health and
well-being and enhancing livelihoods around the world so Unilever
and our communities grow successfully together. There can be no
assurance that sustainable business solutions will be developed and
failure to do so could limit Unilever’s growth and profit
potential and damage our corporate reputation.
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CLIMATE CHANGE
Climate
changes and governmental actions to reduce such changes may disrupt
our operations and/or reduce consumer demand for
our
products.
Climate
changes are occurring around the globe which may impact our
business in various ways. They could lead to water shortages which
would reduce demand for those of our products that require a
significant amount of water during consumer use. They could also
lead to an increase in raw material and packaging prices or reduced
availability. Governments may take action to reduce climate change
such as the introduction of a carbon tax or zero net deforestation
requirements which could impact our business through higher costs
or reduced flexibility of operations.
Increased
frequency of extreme weather (storms and floods) could cause
increased incidence of disruption to our manufacturing and
distribution network. Climate change could result therefore in
making products less affordable or less available for our consumers
resulting in reduced growth and profitability.
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PLASTIC PACKAGING
A
reduction in the amount of plastic and an increase in the use of
recyclable content in our packaging is critical to our future
success.
Both
consumer and customer responses to the environmental impact of
plastic waste and emerging regulation by governments to tax or ban
the use of certain plastics requires us to find solutions to reduce
the amount of plastic we use; increase recycling post-consumer use;
and to source recycled plastic for use in our packaging. We are
also dependent on the work of our industry partners to create and
improve recycling infrastructures throughout the
globe.
Not
only is there a risk around finding appropriate replacement
materials, due to high demand the cost of recycled plastic or other
alternative packaging materials could significantly increase in the
foreseeable future and this could impact our business performance.
We could also be exposed to higher costs as a result of taxes or
fines if we are unable to comply with plastic regulations which
would again impact our profitability and reputation.
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CUSTOMER RELATIONSHIPS
Successful
customer relationships are vital to our business and continued
growth.
Maintaining
strong relationships with our existing customers and building
relationships with new customers who have built new
technology-enabled business models to serve changing shopper habits
are necessary to ensure our brands are 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 competitive trade terms. Failure to maintain
strong relationships with customers could negatively impact our
terms of business with affected customers and reduce the
availability of our products to consumers.
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TALENT
A
skilled workforce and agile ways of working are 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 compete and
grow effectively.
This is
especially true in our key emerging markets where there can be a
high level of competition for a limited talent pool. The loss of
management or other key personnel or the inability to identify,
attract and retain qualified personnel could make it difficult to
manage the business and could adversely affect operations and
financial results.
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SUPPLY CHAIN
Our
business depends on purchasing 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,
trade restrictions or disruptions at a key supplier, which could
impact our ability to deliver orders to our customers.
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.
Changes
in trade relationships between Europe and the UK as a result of
Brexit could give rise to both a supply and cost
issue.
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SAFE AND HIGH QUALITY PRODUCTS
The
quality and safety of our products are of paramount importance for
our brands and our reputation.
The
risk that raw materials are accidentally or maliciously
contaminated throughout the supply chain or that other product
defects occur due to human error, equipment failure or other
factors cannot be excluded.
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SYSTEMS AND INFORMATION
Unilever’s
operations are increasingly dependent on IT systems and the
management of information.
The
cyber-attack threat of unauthorised access and misuse of sensitive
information or disruption to operations continues to increase. Such
an attack could inhibit our business operations in a number of
ways, including disruption to sales, production and cash flows,
ultimately impacting our results.
In
addition, increasing digital interactions with customers, suppliers
and consumers 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 to ensure data
privacy.
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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, disposals and organisational transformation, to drive
continuous improvement in our business and to strengthen our
portfolio and capabilities. A number of key projects were announced
in 2017 to accelerate sustainable shareholder value creation.
Failure to execute such initiatives successfully could result in
under-delivery of the expected benefits and there could be a
significant impact on the value of the business.
Continued
digitalisation of our business models and processes together with
enhancing data management capabilities is a critical part of our
transformation. Failure to keep pace with such technological change
would significantly impact our growth and
profitability.
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ECONOMIC AND POLITICAL INSTABILITY
Unilever
operates around the globe and is exposed to economic and political
instability that may reduce consumer demand for our products,
disrupt sales operations and/or impact the profitability of our
operations.
Adverse
economic conditions may affect one or more countries within a
region, or may extend globally.
Government
actions such as foreign exchange or price controls can impact on
the growth and profitability of our local operations.
Unilever
has more than half its turnover in emerging markets which can offer
greater growth opportunities but also expose Unilever to related
economic and political volatility.
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TREASURY AND PENSIONS
Unilever
is exposed to a variety of external financial risks in relation to
Treasury and Pensions.
The
relative values 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.
Unilever
may face liquidity risk, ie 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.
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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
brands 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. Despite
the commitment of Unilever to ethical business and the steps we
take to adhere to this commitment, there remains a risk that
activities or events cause us to fall short of our desired
standard, resulting in damage to Unilever’s corporate
reputation and business results.
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LEGAL AND REGULATORY
Compliance
with laws and regulations is an essential part of Unilever’s
business operations.
Unilever
is subject to national and regional laws and regulations in such
diverse areas as product safety, product claims, trademarks,
copyright, patents, competition, employee health and safety, data
privacy, 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. Tax, in particular, is a complex area where laws
and their interpretation are changing regularly, leading to the
risk of unexpected tax exposures. International tax reform remains
a key focus of attention with the OECD’s Base Erosion &
Profit Shifting project and further potential tax reform in the EU
and Switzerland.
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Related party balances
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€ million
2018
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€ million
2017
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Trading and other balances due from joint ventures
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121
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124
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Trading and other balances due from/(to) associates
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Name
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Function
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Marijn
Dekkers
Youngme
Moon
Graeme
Pitkethly
Nils
Andersen
Laura
Cha
Vittorio
Colao
Judith
Hartmann
Andrea
Jung
Mary
Ma
Strive
Masiyiwa
John
Rishton
Feike
Sijbesma
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Chairman
Vice-Chairman
and Senior Independent Director
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
Non-Executive
Director
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