DBRS Confirms Unilever at A (high), R-1 (low), with Stable Trend

DBRS has today confirmed the ratings of Unilever N.V. and Unilever PLC, which together constitute Unilever Group (Unilever or The Company), at A (high) and R-1 (low). The trends remain Stable. The Company’s strong portfolio of leading brands and geographic diversification continue to support the ratings by providing consistent top-line and earnings growth.

Although volumes are becoming increasingly pressured in developed markets, Unilever’s underlying sales growth continues to trend positively, due mainly to continued growth in developing and emerging markets. The Company has increased its reliance on pricing, due in part to the significant increase in commodity costs through F2007 and H1 2008. Despite softening developed markets and cost pressures, pricing increases along with ongoing cost-saving initiatives have allowed the Company to continue realizing modest improvements in operating margins.

Over the near term, DBRS believes that increasing global economic weakness will slow growth in the Company’s developing and emerging markets. DBRS believes this will result in overall underlying sales growth toward the lower end of the Company’s target range of 3% to 5%. Despite mounting consumer pressure, DBRS expects operating margins should continue to show modest improvement based on subsiding commodity costs and additional cost savings.

Positive free cash flow and non-core asset sales continue to support Unilever’s share repurchase program, while keeping the Company’s financial profile relatively stable. In keeping with Unilever’s strategy to focus on higher-margin, higher-growth businesses, the Company continues to sell non-core assets, which in F2007 and 2008 (to date) included Boursin, Lawry’s and Adolph’s, as well as the Company’s North American Laundry business. Total proceeds from disposals (F2007 and YTD 2008) were approximately EUR 1.7 billion. Free cash flow along with proceeds from dispositions were used to partially finance EUR 1.5 billion in share repurchases in F2007 and another EUR 1.5 billion in F2008. While gross debt has increased to EUR 10.3 billion at Q3 2008, from EUR 8.8 billion at year-end F2006, lease-adjusted cash flow-to-debt leverage has remained relatively stable, given the improvement in operating cash flow over the period.

Over the near term, DBRS believes operating cash flow will show modest improvements and continue to provide relatively stable free cash flow, which DBRS expects will be used mainly for share repurchases. While the Company has not provided guidance on F2009 share buy-backs, we expect any such activity (including acquisitions etc.) will be completed with the intent of keeping credit metrics within the parameters of the current rating category.

Notes:
This rating is based on public information.

All figures are in euros unless otherwise noted.

The applicable methodology is Rating Consumer Products which can be found on our website under Methodologies.

This is a Corporate (Consumer Products & Retail) rating.