RISKS

The following discussion of the risk outlook and our principal risk management
activities includes forward-looking statements that reflect Unilevers view of the
operating risk environment. The actual results could differ materially from those
projected. See the Cautionary statement on the inside back cover of the full Annual
Report.
OUTLOOK
Market conditions for our business were again challenging in 2013 and we do not anticipate this
changing significantly in 2014.
Economic pressures are expected to continue. Consumer demand in emerging markets has
slowed and is expected to remain subdued in 2014. In developed market economies, there are
signs of gradual recovery, but any improvement in consumer demand is likely to be slow and
muted and shoppers will remain focused on value. While the greatest pressures in the Eurozone
have reduced, they have not been permanently resolved and economic and political risks remain.
Currency markets remain volatile and uncertain. Commodities markets have been relatively
stable during 2013 but we remain watchful of potential volatility in 2014. Terrorist activity and
political unrest may also result in business interruptions and a decreased demand for our
products.
The competitive environment for our business is likely to remain intense in 2014. Our
competitors, both global and local, will continue to shift resources into emerging markets. We
expect continued high levels of competitive challenge to our many category leadership positions.
Some of this may be price based, but we also expect strong innovation based competition. With
the improvements we have been making, and continue to make, to our business we are well
prepared for these challenges.
Our plans give us confidence that Unilever can continue to deliver against the objectives we have
set out: volume growth ahead of our markets, steady and sustainable improvement in core
operating margin and strong cash flow.
OUR RISK APPETITE AND APPROACH TO RISK MANAGEMENT
Risk management is integral to Unilevers strategy and to the achievement of Unilevers long-
term goals. Our success as an organisation depends on our ability to identify and exploit the
opportunities generated by our business and the markets we are in. In doing this we take an
embedded approach to risk management which puts risk and opportunity assessment at the core
of the leadership team agenda, which is where we believe it should be.
Unilever adopts a risk profile that is aligned to our vision to double the size of our business while
reducing our environmental footprint and increasing our positive social impact. Our available
capital and other resources are applied to underpin our priorities. We aim to maintain a strong
single A credit rating on a long-term basis.
Our approach to risk management is designed to provide reasonable, but not absolute,
assurance that our assets are safeguarded, the risks facing the business are being assessed
and mitigated and all information that may be required to be disclosed is reported to Unilevers
senior management including, where appropriate, the Chief Executive Officer and Chief Financial
Officer.
Organisation
Foundation and principles
Processes
Assurance and re-assurance
BOARD'S ASSESSMENT OF COMPLIANCE WITH THE RISK MANAGEMENT
FRAMEWORKS
The Boards, advised by the Committees where appropriate, regularly review the significant risks
and decisions that could have a material impact on Unilever. These reviews consider the level of
risk that Unilever is prepared to take in pursuit of the business strategy and the effectiveness of
the management controls in place to mitigate the risk exposure.
The Boards, through the Audit Committee, have reviewed the assessment of risks, internal
controls and disclosure controls and procedures in operation within Unilever. They have also
considered the effectiveness of any remedial actions taken for the year covered by this report
and up to the date of its approval by the Boards.
Details of the activities of the Audit Committee in relation to this can be found in the Report of the
Audit Committee.
Further statements on compliance with the specific risk management and control requirements in
the Dutch Corporate Governance Code, the UK Corporate Governance Code, the US Securities
Exchange Act (1934) and the Sarbanes-Oxley (2002) Act can be found in Corporate
Governance.
PRINCIPAL RISK FACTORS
Our business is subject to risks and uncertainties. Below we have identified the risks that we
regard as the most relevant to our business. There may be other risks which are unknown to
Unilever or which are currently believed to be immaterial. We have also commented below 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 cash flow, 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, which may include
forward-looking statements, or could impact on our ability to meet our targets or be detrimental to
our profitability or reputation.
http://www.unilever.co
m/investorrelations/ann
ual_reports/AnnualRep
ortandAccounts2013/ri
sks.aspx
Financial Risk
Management
Risk management is the responsibility of the BoD, supported by the Corporate Risk
Management Committee. The Committee, comprising the Group Audit Manager, Financial
Controller, Commercial Managers, Business System Manager and Corporate Secretary, is led
by the Chief Financial Officer.
Risk management is the responsibility of the BoD, supported by the Corporate Risk Management Committee. The
Committee, comprising the Group Audit Manager, Financial Controller, Commercial Managers, Business System Manager
and Corporate Secretary, is led by the Chief Financial Officer. The Committee assists the Board in ensuring that effective,
up-to-date systems for risk management are in place.
We have identified and assessed the risks relevant to our business. The most important of these are outlined below, together
with the associated mitigation measures.
Operation Risk
Our ability to manufacture products depends on our capability to secure timely and cost-effective supplies of production
materials. Some of them are commodities that are traded globally. Global economic conditions have a significant influence
on the price fluctuations of such commodities and those of other key materials, which can have a significant impact on our
product costs.
Commodity prices increased significantly in 2011 and this trend is likely to continue in 2012. Inability to increase our prices
to offset higher input costs could reduce our cash flow, profit and/or profit margin. On the other hand, imposing higher
prices increases than our competitors could undermine our competitiveness and hence our market share.
The Company has a process in place to monitor raw material demand forecasts, on the basis of which we determine future
production requirements. This also facilitates the forward buying of traded commodities in order to mitigate future volatility
in commodity costs. Contingency plans have been prepared to enable us to secure alternative key material supplies at short
notice and to use substitute materials in our product formulations and recipes.
We regularly conduct value improvement programmes to identify cost/value opportunities in both direct and indirect costs.
Internal and external benchmarking helps us to optimise capacity utilisation and cost. Pricing is determined through a
comprehensive inter-departmental process that takes into account various factors, including product value and proposition, to
establish the optimum level.
Market Risk
Indonesias growth potential is increasingly recognized at the local, regional and international level. The countrys recent
positive investment grade has reinforced this sentiment. Our local and international competitors are rapidly positioning
themselves to capture a larger share of this growing market. Failure to anticipate this trend could adversely affect our
business.
The Company focuses on categories and products that are identified as attractive, i.e. where the Company or its parent have,
or can build, a competitive advantage, and where sales and margins can be grown consistently.
External market trends and insights from consumers, customers and shoppers are monitored regularly to develop category
and brand strategies that will subsequently converted into series of projects aimed at providing consumers and customers
with relevant products and services.
We believe that with the depth of our product/brand portfolio, our focus on high quality yet cost competitive products, our
strong innovation and market development programmes, low cost base and superior execution in sales and distribution,
supported by highly capable people with the passion to win, we are ready to take on this competitive environment.
People & talent
The Indonesian job market is increasingly competitive as global and local players compete for the best people. Attracting,
developing and retaining talented employees is vital for the successful execution of our strategy. Failure to do so would
adversely affect our ability to operate successfully, grow the business and compete in a tough business environment.
Resource Committees have been established in each of the divisions and functions. These Committees are responsible for
identifying future skill and capability needs, defining career paths and professional training programmes, doing remuneration
benchmarking, as well as identifying key talent and future leaders. Surveys are conducted regularly to obtain feedback from
the employees. An integrated people development programme has been established, which includes regular performance
review, underpinned by a set of Standards of Leadership behaviours, skills and competency profiling, mentoring, coaching
and training.
Insurance
Corporate Assets Insurance
The Company manages risks related to operational assets by transferring the risk to insurance companies. The assets insured
are fixed assets, including buildings, machinery, vehicles, and assets under construction, which are distributed among our
factories in Cikarang and Rungkut, our head office, and our depots all over Indonesia. In 2011, the Company owned a
number of insurance policies issued by insurance companies, as follows:
1. Property All Risks (PAR) Insurance Policies
This insurance covers the risk of potential loss of operational assets in relation to the distribution business at the Head
Office and in the areas of operation
2. Marine Open Cover Insurance Policies
This insurance covers the risk of potential loss of inventories in operational locations, including inventories in
distributors warehouses and in transit.
3. Motor Vehicle Insurance Policies
This insurance covers the risk of loss or damage to motor vehicles that could be incurred by the Company. This insurance
covers third party vehicles and loss of Company vehicles.
4. Public Product Liability Insurance Policies
PPL insurance covers risks to Unilever products, such as the risk of product recall.
Business travel personal accident insurance
Unilever Indonesia works with PT Chartis Insurance Indonesia to issue business travel personal accident insurance policies.
This insurance, which has worldwide coverage, is intended to provide coverage/benefits for employees who suffer financial
losses resulting from accidents when travelling on Company business.
Old Age, Accident and Death Benefits
In addition to business travel personal accident insurance, Unilever Indonesia also participates in the Jamsostek (Employees
Social Security) scheme, which covers old age benefits, accident benefits, and death benefits.
http://www.unilever.co.id/aboutus/goodcorporategovernance/financialriskmanagement/



The 3 Biggest Risks Facing Unilever
By Malcolm Wheatley | More Articles
November 21, 2012 | Comments (0)
LONDON -- With its strong clutch of category-leading consumer brands and growing emerging-
market presence, Unilever (LSE: ULVR.L ) (NYSE: UL ) is a business with very definite
attractions. A 67 billion pound FTSE 100 constituent, the company earned a pre-tax profit of 6.2
billion pounds on revenues of 47 billion pounds last year.
And with margins like that, no wonder this defensively positioned business is popular with many
investors. Better still, with its shares changing hands today at 2,334 pence, the company offers
income investors a reasonably tempting forecast dividend yield of 3.4%.
But how safe is that share price? And -- of vital importance to income investors -- how safe is that
dividend? In short, how could an investment in Unilever adversely impact investors' wealth?
In this series, I set out to answer just these questions. My starting point: Unilever's latest annual
report, where the company's directors are obliged to address the issue of risk.
Risk management
One immediate thing I'm looking for is an acknowledgement that risks do exist and need
managing.
The good news? As you'd expect from a business of Unilever's size and caliber, the company
has in place a risk-management policy, a system of regular reviews, and a number of high-level
committees tasked with monitoring the risks that the business has identified.
But what, precisely, are those risks?
Read the small print, and Unilever identifies no fewer than 13 risks as having a significant
potential impact on the company's financial performance. They range from political risks and
natural disasters to changing consumer tastes, and from private-label brands to supply chain
disruption.
So let's take a look at three of the biggest.
Customer relationships
Unilever operates in one of the world's toughest marketplaces, selling premium branded products
to supermarkets such as Tesco, Sainsbury's, and Morrison's. And not only are these
supermarkets tough negotiators, capable of delisting brands and shrinking available shelf space,
but they are also competitors, too. Competitors? That's right: Competing against almost every
Unilever brand is a cheaper supermarket "own label" offering. As the company puts it:
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 ... [and] our retail customers frequently
compete with us through private label offerings.
Here, Unilever's strength in emerging markets -- where it makes 54% of sales -- helps
significantly. As the company points out, it aims to 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.
Also, both brands and customer relationships are focused around areas where Unilever thinks it
can add value and build sustainable competitive advantage -- positioning it firmly away from
price-led markets and customers and more into ones where its strengths in innovation,
sustainability, and other non-price characteristics are valued.
Sustainability
And speaking of sustainability, Unilever has set itself a tough challenge. Sustainability, it
recognizes, is important to consumers -- and so it is important to Unilever. But can this
importance be reflected without impacting growth and profitability? As the company puts it:
"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."
To me, the risk here is around growing the business. In terms of ensuring sustainability, the
company can point to the Unilever Sustainable Living Plan, which sets clear long-term
commitments for environmental impact, underpinned by specific targets in areas such as
sustainable sourcing, water availability and usage, waste, and greenhouse gases. These, in turn,
are monitored by the Unilever Sustainable Development Group, comprising five external
specialists in corporate responsibility and sustainability.
But growing the business and profit at the same time? Beyond an acknowledgement that
progress toward the Unilever Sustainable Living Plan is monitored by the Unilever leadership
executive team and the board, nothing is said.
Supply chain risk
Unilever is a global business with global supply chains. But what happens to profit and revenue
when those supply chains are disrupted? As Unilever puts it: "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."
How are these risks dealt with? By policies designed to ameliorate risk in the first place and
contingency plans to deal with the aftermath of whatever disruption does materialize.
Such plans, for instance, are designed to enable the company to secure alternative material
supplies on short notice, to transfer or share production between manufacturing sites, and to use
substitute materials in our product formulations and recipes. Additionally, 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 at risk of negatively affecting a Unilever product.
Risk vs. reward
Two superstar investors who are used to weighing risks are Neil Woodford and Warren Buffett.
On a dividend-reinvested basis over the 15 years to the end 2011, Woodford delivered a return
of 347%, versus the FTSE All-Share's distinctly more modest 42% performance. Buffett, for his
part, has delivered returns of more than 20% per annum since 1965, transforming himself into
the world's third-wealthiest person.
Each, as it happens, is the subject of a special report prepared by Motley Fool analysts. These
reports are yours to download, without any obligation. So click here to download thisfree special
report profiling the investment logic behind eight of Woodford largest and most successful current
picks. And click here to discover which beaten-down British share Warren Buffett has been buying
of late, why he bought it, and the price he paid.

http://www.fool.com/investing/international/2012/11/21/the-3-biggest-risks-facing-unilever.aspx