(The following statement was released by the rating agency)
MILAN/LONDON, April 24 (Fitch) Fitch Ratings has affirmed Unilever NV's and
Unilever PLC's (together Unilever) Long-term Issuer Default Ratings (IDR) and
senior unsecured ratings at 'A+' and Short-term IDRs at 'F1'. The Outlook on the
Long-term IDRs is Stable. Fitch has also affirmed Unilever Capital Corporation's
(UCC) senior unsecured rating at 'A+' and its commercial paper programme at
'F1', as well as Alberto Culver's senior unsecured rating at 'A+' as both UCC
and Alberto Culver benefit from cross-guarantees between Unilever NV and
Unilever's ratings continue to factor the stability of its operating and
financial profiles, as complemented by good scope for organic growth and by
Fitch's confidence that the company will generate sufficient free cash flow
(FCF) to fund its ambitions in terms of bolt-on M&A and shareholder
distributions. Fitch does not expect M&A or shareholder distributions to
compromise Unilever's solid credit metrics.
KEY RATING DRIVERS:
Resilience from Diversification
Unilever has wide-ranging businesses and is one of the most geographically
diversified fast-moving consumer goods companies in the world, with 55% of sales
deriving from emerging markets. These sales have been growing in 2012 for the
second consecutive year by more than 11% with strong growth from Asia
(Indonesia, China, Thailand and India) as well as Latin America (Brazil and
Strong Organic Growth
Unilever's target of doubling revenues to EUR80bn by 2020 relies mostly on
organic growth. Fitch believes this is achievable subject to maintaining a pace
of annual organic revenue growth of at least mid-single digit, along the lines
of what the company has delivered over 2008-2012, and with balanced contribution
from volume and price increases.
M&A and Restructuring
Unilever has been more acquisitive since 2009 but has also been divesting
low-growth operations as it focuses on (mainly organic) revenue growth. Fitch
does not factor in large M&A but has assumed in its rating case forecasts an
average annual acquisition spending of EUR1.5bn net of small disposals of some
lower growth assets. The continuing churn of operations and the gradual shift of
focus towards emerging markets will require an evolving operational structure.
Consequently, management has budgeted ongoing annual restructuring charges of 1%
of sales which is reasonable in Fitch's opinion given the rationalisation
efforts already made.
Focus on Personal Care
The personal care segment (35% of 2012 net sales and 42% of operating profits)
is becoming increasingly important for Unilever, particularly following recent
M&A. Despite more cyclical revenue, personal care has higher growth potential,
especially in emerging markets, and high profitability compared with food.
However, management intends food (47% of sales in 2012) to retain an equal
balance of contribution to sales with the combination of home and personal care.
Commitment to High Rating
Fitch understands that Unilever's policy is to maintain credit ratios
commensurate with an 'A+' rating. Although the group has not specified financial
targets to investors, lease-adjusted net leverage has remained consistently
between 1.3x and 1.7x since 2006 (2012: 1.3x). This is strong for the current
rating level. Fitch expects positive FCF in the range of EUR1.0bn to EUR1.5bn
and leverage to remain steady. Fitch does not expect any major returns of
capital to shareholder other than maintaining a steady dividend payout of 60%.
Unilever's priority is to grow and invest in its business and therefore bolt on
acquisitions and disposals of slower growth assets are more likely than any
other shareholder-friendly initiatives.
Positive: Future developments that could lead to positive rating actions
- Continued progress with operational restructuring or business mix so that EBIT
margin is maintained at least at 14% (after restructuring costs).
- Lease-adjusted net leverage sustainably between 1.0-1.3x or FFO-adjusted net
leverage within 1.3x-1.5x and FFO fixed charge coverage of more than 8x.
- Evidence of free cash flow in the high-end of EUR1bn-EUR2bn range
- Commitment to maintaining credit ratios and financial policies consistent with
a 'AA-' rating.
Negative: Future developments that could lead to negative rating action include:
- A change in financial policy, such as sizeable share repurchase programme or
special dividend, resulting in an increase in lease-adjusted net leverage to
over 2x or FFO-adjusted net leverage between 2.0x to 2.5x on a sustainable basis
- Significant slowdown in growth in the emerging markets to which Unilever is
- FFO fixed charge cover of less than 6x
- Free cash flow consistently below EUR1bn annually.
Ching Mei Chia
+44 20 3530 1068
+39 02 8790 87214
Fitch Italia SpA
Vicolo Santa Maria alla Porta, 1
+44 20 3530 1021
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:
Additional information is available on www.fitchratings.com. For regulatory
purposes in various jurisdictions, the supervisory analyst named above is deemed
to be the primary analyst for this issuer; the principal analyst is deemed to be
Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012, are
available at www.fitchratings.com.
Applicable Criteria and Related Research
Corporate Rating Methodology
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