DBRS Confirms Unilever at A (high) with a Stable Trend

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 credit risk profile of Unilever remains on track for the ratings, which are supported by the Company’s strong portfolio of leading brands and geographic diversification. Revenue growth continues to be driven by increases in the Americas and Asia/Africa whereas in Europe, sales are flat. Operating margins have remained relatively stable over the last year as higher commodity costs were offset by modest price increases and savings programs.

Unilever completed the sale of its European frozen foods business in November 2006. The EUR 1.2 billion of net proceeds from the sale was mainly used for debt reduction. The Company aims to achieve consistent revenue growth from continuing operations in the upper end of the 3% to 5% range per year. As 70% of Unilever’s sales come from the mature markets in Europe and the Americas, DBRS believes this is an optimistic goal. However, it could be reached if the Company is able to accelerate the pace of volume growth in emerging markets, primarily China (20% sales growth in H1 2007).

Unilever will continue to divest non-core lines in order to focus on a smaller portfolio of higher margin, higher growth brands. The Company has already planned to sell assets worth more than EUR 2 billion in sales, including the North American laundry unit. DBRS expects proceeds from disposals will be used primarily for share buybacks and/or dividends as net debt is at EUR 9 billion, below the Company’s EUR 10 billion target. The Company has a EUR 1.5 billion share repurchase program in place this year which DBRS expects will be increased in 2008. As a result, DBRS believes that cash flow-to-debt will settle in the 35% to 40% range and net debt-to-EBITDA will remain below 2 times, both comfortable levels within the current rating category.

Notes:
All figures are in euros unless otherwise noted.
This rating is based on public information.