DBRS Confirms Unilever Group at A (high) and R-1 (low)

Dominion Bond Rating Service (DBRS) has today confirmed the Senior Long-Term Debt rating of the Unilever Group (Unilever or the Company) at A (high) and its Commercial Paper rating at R-1 (low); the trends are Stable.

The earnings profile of Unilever has displayed indications of stabilizing following a difficult period of declining sales growth between 2002 and 2004, providing greater comfort that the overall credit risk profile is adequately situated within the current rating category. New-product innovation and strong growth in Unilever’s Asia and Americas regions have contributed to improved performance. In addition, rationalization focused on sharpening the portfolio of brands and enhancing operating efficiency has helped offset the effects of rising costs and intensifying competition.

Unilever’s financial profile has remained stable, despite the challenging operating environment of the past few years, based on its steady and significant free cash flow generation and its prior focus on debt reduction.

In line with Unilever’s strategy to consolidate its portfolio of brands, it undertook divestures of underperforming and non-core assets that generated cash proceeds of close to €1 billion in 2005. The year also marked a shift toward share repurchases (€1,276 million) because Unilever had basically reached its target net debt of approximately €10 billion by focusing on debt reduction from 2001 to 2004.

Although we expect rising volumes (particularly in developing markets) to continue to drive revenue growth, pricing strategies will likely play an increasing role in enhancing organic growth. Improvement in profitability will be driven by the successful implementation of price increases and rationalization, as well as by maximizing the positive effect of recent divestitures and renewed focus on key products and markets.

DBRS expects Unilever’s financial profile to remain relatively stable in the near term, with potential for improvement in the longer term if the company is successful in revitalizing growth in earnings. DBRS anticipates that free cash flow will be used primarily for share repurchases going forward because the Company is essentially at its target net debt level.

In Q3 2006, Unilever announced its intention to divest itself of the majority of its underperforming European frozen foods business for €1,725 million. Although the Company has not confirmed the specific use of the proceeds, we expect Unilever to also use these proceeds primarily for share repurchases, keeping within the strategic and financial parameters of the rating category.

Note: These ratings are based on public information only.