Report & accounts 2002 in full - Unilever

40 Financial review
• Innovation:
Our growth depends in large part on our ability to
generate and implement a stream of consumer-relevant
improvements to our products. The contribution of
innovation is affected by the level of funding that
can be made available, the technical capability of the
research and development functions, and the success
of operating management in rolling out quickly the
resulting improvements.
• Economic conditions in developing countries:
About a third of Unilever’s sales come from the group of
developing and emerging economies. These markets are
also an important source of our growth. These economies
are more volatile than those in the developed world,
and there is a risk of downturns in effective consumer
demand that would reduce the sales of our products.
• Borrowings:
The Group had borrowings totalling €20 444 million
at the end of 2002. Any shortfalls in our cashflow
commitments to service these borrowings could
undermine our credit rating and overall investor
confidence. Market, interest rate and foreign exchange
risks to which the Group is exposed are described on
page 39.
• Price volatility of raw materials:
Unilever’s raw materials cover a wide range of agricultural
and mineral products that are subject to movements in
cyclical commodity prices. There may be times when
increases in these prices cannot be recovered fully in
selling prices due to competitor actions or weakness
in effective consumer demand.
• Reputation:
Unilever has a good corporate reputation and many of
our businesses, which operate in around 100 countries
around the world, have a high profile in their region.
Unilever products carrying our famous brand names are
sold in over 150 countries. Should we fail to meet high
product safety, social, environmental and ethical standards
in all our operations and activities, Unilever's corporate
reputation could be damaged, leading to the rejection
of our products by consumers, devaluation of our brands
and diversion of management time into rebuilding our
reputation. Examples of initiatives to manage key social
and environmental risks are mentioned on pages 11
and 12.
• Customer relationships:
Sales to large customers or sales via specialised
distribution channels are significant in some of our
businesses. The loss of a small number of major
customers or a major disruption of a specialised
distribution channel could have an adverse effect
on the Group’s business and results of operations.
Unilever Annual Report & Accounts and Form 20-F 2002
• Developing our managers:
Unilever’s performance requires that it have the right
calibre of managers in place. We must compete to
obtain capable recruits for the business, and then train
them in the skills and competencies that we need to
deliver growth.
• Our brands:
A key element of our Path to Growth strategy is the
development of a small number of global, leading brands.
Any adverse event affecting consumer confidence or
continuity of supply of such a brand would have an
impact on the overall business.
In addition, as a multinational group, Unilever’s businesses
are exposed to varying degrees of risk and uncertainty
related to other factors including competitive pricing,
consumption levels, physical risks, legislative, fiscal, tax and
regulatory developments, terrorism and economic, political
and social conditions in the environments where we
operate. All of these risks could materially affect the Group’s
business, our turnover, operating profit, net profit, net assets
and liquidity. There may also be risks which are unknown to
Unilever or which are currently believed to be immaterial.
Total Shareholder Return
Total Shareholder Return (TSR) is a concept used to compare
the performance of different companies’ stocks and shares
over time. It combines share price appreciation and
dividends paid to show the total return to the shareholder.
The absolute level of the TSR will vary with stock markets,
but the relative position reflects the market perception of
overall performance relative to a reference group.
The Company calculates TSR over a three-year rolling period.
This period is sensitive enough to reflect changes but long
enough to smooth out short-term volatility. The return is
expressed in US dollars, based on the equivalent US dollar
share price for NV and PLC. US dollars were chosen to
facilitate comparison with companies in Unilever’s chosen
reference group.
Unilever’s TSR target is to be in the top third of a reference
group of 21 international consumer goods companies on a
three year rolling basis.
At the end of 2001 we were positioned 15th and during
2002 we rose to 12th, outside our target position which
remains the top third of our reference group. This position is
influenced by the decline in the share price in the latter part
of 1999. On a one year basis, our TSR has been in the top
third of the reference group for each of the last two years.