DBRS Upgrades The Procter & Gamble Company

DBRS has today upgraded Senior Long-Term Debt rating of The Procter & Gamble Company (P&G or the Company) to AA (low) from A (high) and its Commercial Paper rating to R-1 (middle) from R-1 (low), both with Stable trends.

The action removes the ratings from Under Review with Positive Implications where they were placed on May 1, 2007. At that time, DBRS noted P&G’s steady improvement in profitability, cash-generating capacity and overall financial credit metrics since the acquisition of The Gillette Company (Gillette).

Upon completion of our detailed review, DBRS is comfortable that positive operating results displayed during the proceeding 18-month period reflect the successful integration of Gillette. DBRS believes the resulting reduction in risk places the overall credit risk profile of P&G well within the AA (low) rating category despite the Company’s increased share repurchase program announced today.

P&G’s strategy included focusing on faster-growing brands that deliver higher margins and/or greater asset efficiency, enhanced brand and geographic diversification and strengthening retail relationships. P&G had established an annual sales growth target of 5% to 7%, cost synergies in excess of $1 billion and an operating margin target of 24% by 2010.

P&G has displayed a strong record of sales growth and margin improvement as it progresses toward longer-term objectives. The Company should continue to benefit from its enhanced scale and cost-savings programs, which have enabled it to offset much of the impact of rising costs. Strong operating performance has led to solid improvement in key credit metrics (i.e., lease-adjusted operating cash flow-to-total debt has improved to 38% (for F2007) from approximately 30% (at the time of the Gillette acquisition)).

In conjunction with its release of strong F2007 results, P&G announced that it will repurchase $24 billion to $30 billion of shares over the next three years ($8 billion to $10 billion per year). Although this is a significant increase from previous levels ($5.5 billion in shares were repurchased in F2007), it should only result in modest increases to debt (current balance of $34.5 billion) as DBRS forecasts that free cash flow after dividends will be approximately $7 billion in F2008. DBRS expects key financial leverage metrics, including cash flow-to-debt, will remain close to current levels.

The credit risk profile of the Company also continues to be supported by the strong status of the Company’s global brands, which are all number one or number two in their respective categories. Strong volume growth in almost every operating division over recent periods has led to a strengthening of its leadership positions.

Note:
All figures are in U.S. dollars unless otherwise noted.