May 13, 2014 / 4:16 PM / 3 years ago

Fitch Affirms Unilever at 'A+'; Outlook Stable

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(The following statement was released by the rating agency) MILAN/LONDON, May 13 (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 their Short-term IDRs at 'F1'. The Outlook on the Long-term IDRs is Stable. Fitch has also affirmed at 'A+' the senior unsecured ratings of debt issued by Unilever Capital Corporation (UCC) and Alberto Culver as well as the 'F1' rating of the commercial paper programmes of Unilever NV, Unilever PLC and UCC. Both UCC and Alberto Culver benefit from cross-guarantees with Unilever NV, Unilever PLC and Unilever United States, Inc. Unilever's ratings continue to factor in the stability of its operating and financial profiles. This is supported by a reasonable potential for organic growth and by Fitch's confidence that the company will generate sufficient free cash flow (FCF) to fund its ambitions 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 Adequate Organic Growth Unilever's target of doubling revenue to EUR80bn relies mostly on organic growth. Fitch believes this is achievable over the long-term (around 2020), by maintaining annual organic revenue growth of at least in the mid-single digits. In particular, Fitch expects the higher-growth home and personal care segment to contribute more materially to consolidated organic growth, in both volumes and prices. Developing markets continue to deliver high-single digit organic growth and represent an above-average share (57% in 2013) of Unilever's sales, relieving it of any pressure to be acquisitive. M&A Activities Unilever has become more acquisitive since 2009 but has also been divesting low-growth operations as it focuses on (mainly organic) revenue growth. Apart from the EUR2.45bn disbursement for the Hindustan transaction that took place in 2013, the ratings do not factor in large M&A and assume for 2014-2016 average annual acquisition spending of EUR1.5bn, net of small disposals of some lower-growth assets. Commitment to High Rating Unilever's policy is to maintain credit ratios commensurate with an 'A+' rating. Lease-adjusted net leverage has remained consistently between 1.3x and 1.4x since 2006 (except in 2011, when it peaked at 1.7x). Over 2014-2015 Fitch expects positive FCF in the range of EUR0.6bn to EUR0.8bn and leverage to remain stable. This profile remains consistent with the current rating given the sector. Cash Flow Covers Shareholder Distributions The company has not over the past three years engaged in any share buyback activity. Barring large divestment proceeds, Fitch does not expect any major returns of capital to shareholders. We believe Unilever will maintain dividend payout in the 60% to 70% range (FY13: 70%). As Unilever's priority is to invest in its business bolt-on acquisitions and disposals of slower-growth assets remain more likely than other shareholder-friendly initiatives. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, 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 (2013: 1.9x) on a sustained basis -Significant slowdown in growth in the emerging markets to which Unilever is mainly exposed -FFO fixed charge cover of less than 6x (2013: 7.3x) -FCF consistently below EUR1bn annually (2013: EUR858m) Positive: Future developments that may, individually or collectively, lead to positive rating action include: -Continued progress with operational restructuring or business mix, leading to EBIT margin of at least 14% (2013: 14.1%) -Lease-adjusted net leverage sustainably between 1.0x-1.3x or FFO-adjusted net leverage within 1.3x-1.5x and FFO fixed charge coverage of more than 8x -Evidence of FCF in the high-end of EUR1bn-EUR2bn range -Commitment by management to maintaining credit ratios and financial policies consistent with a 'AA-' rating. Contact: Principal Analyst Ching Mei Chia Director +44 20 3530 1068 Supervisory Analyst Giulio Lombardi Senior Director +39 02 8790 87214 Fitch Italia S.p.A. Via Privata Maria Teresa, 8 20123 Milan Committee Chair Raymond Hill Senior Director +44 20 3530 1079 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on 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 the secondary. Applicable criteria, 'Corporate Rating Methodology', dated 5 August 2013, are available at Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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