Rating Action: Moody's affirms Unilever's A1 rating; stable outlook
30 Nov 2020
Milan, November 30, 2020 -- Moody's Investors Service ("Moody's") has today affirmed the A1 long-term issuer rating of Unilever PLC ("Unilever"), as well as the A1 senior unsecured ratings of its subsidiaries, the (P)A1 senior unsecured rating and (P)A2 subordinated rating of the MTN and shelf programmes issued by Unilever and Unilever Capital Corporation ("UCC", A1 stable) and the short-term Prime-1 (P-1) ratings for Commercial Paper issued by Unilever and UCC. The outlook on all ratings is stable. Concurrently the agency has withdrawn all the ratings on Unilever N.V.
The withdrawal of the ratings of Unilever N.V. follows the completion of the unification of the group's corporate structure, as announced by the company on 2 November, 2020 [1]. Effective November 29, Unilever N.V. has been merged into UK-based Unilever PLC, which is now the sole parent of the group. Please refer to the Moody's Investors Service Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.
"The affirmation of the ratings reflects our view that Unilever will maintain its current financial profile, supported by its solid and predictable cash flow generation derived from its large scale and diversified business profile," says Lorenzo Re, a Moody's Vice President - Senior Analyst and lead analyst for Unilever.
A full list of affected ratings is provided at the end of the press release.
RATINGS RATIONALE
The affirmation of Unilever's A1 rating reflects the group's solid business profile, underpinned by its leading market positions, broad geographical diversification and extensive portfolio of brands. Moody's expects that the company will maintain this strong business profile, despite the challenges caused by the coronavirus pandemic, the weak economic conditions and foreign currency volatility.
The lockdown measures caused by the pandemic will continue to hurt demand for some of the company's products which have a high exposure to out-of-home consumption, but will boost other product categories related to home care and at-home eating. The overall impact is likely to remain modest, although Moody's expects that organic sales growth will slow down to between 1% and 2% in 2020 from 2.9% in 2019 and will remain modest at 2.0%-2.5% per year from 2021.
However, the group's exposure to emerging markets and to moves in foreign-currency exchange rates will add some earnings volatility and limit operating profit growth this year.
Moody's expects Unilever to maintain solid cash flow generation with funds from operations remaining stable at around €8.0 billion in 2020 and improving towards €9.0 billion in the next 24 months. As a result, Moody's expects Unilever's gross debt to EBITDA to remain broadly unchanged in 2020, at 2.7x-2.8x, and to gradually improve towards 2.5x after 2021, and funds from operations (FFO)/net debt to remain between 30%-35% in the next 24 months, which is within the thresholds for the A1 rating.
The rating reflects Unilever's prudent financial policy, including the commitment to maintain at least an A2 rating and the company's 2x net debt/underlying EBITDA maximum leverage target. The shareholder distribution policy is also consistent with the leverage target, with dividend growth reflecting profit growth, while large share buybacks are event driven, that is, aimed at distributing proceeds from asset disposals.
With regards to the corporate unification process completed in November 2020, Moody's views it as credit neutral as it has no implications for the company's credit quality nor for bondholders, which will continue to benefit from a pari passu ranking.
LIQUIDITY
Unilever's liquidity is strong, underpinned by cash and cash equivalents of €4.9 billion and short term financial investments of €1.1 billion as of June 2020, and €7 billion equivalent ($8.0 billion) availability under bilateral committed revolving credit facilities with a 364-day term out options (no lenders' consent needed), that are renewed every year. In addition, the company issued $1 billion of new bonds in September 2020. The debt maturities in the next 12 months (€4.8 billion as of June 2020) are well covered by the available cash and alternative sources of liquidity. Moody's expects the company to continue to post positive free cash flow generation (before M&A and exceptional shareholders' distributions) of €1.6 billion - €1.7 billion in 2021.
Unilever has a well-balanced debt maturity profile, with annual maturities between €2 billion - €3 billion on average.
RATIONALE FOR STABLE OUTLOOK
The stable rating outlook reflects Moody's expectation that Unilever will maintain its sound and predictable cash flow generation, underpinned by a strong brand portfolio and wide geographical diversification. Moody's expects its credit metrics to remain within the thresholds for the A1 rating, with FFO/net debt hovering around 35%.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could result if Unilever continues to improve its margins and its Moody's adjusted FFO/net debt rises towards 45%.
Negative rating pressure could build up if Unilever's FFO/net debt declines to below 30% and its Moody's-adjusted EBIT margin remains at or below 16% on a sustained basis. A deviation from the current financial policy that targets a net debt/underlying EBITDA of 2x, could also exert negative pressure on the rating.
LIST OF AFFECTED RATINGS
..Issuer: Bestfoods
Affirmation:
....Backed Senior Unsecured Regular Bond/Debenture, Affirmed A1
Outlook Action:
....Outlook, Remains Stable
..Issuer: Unilever Capital Corporation
Affirmations:
....Backed Commercial Paper, Affirmed P-1
....Backed Subordinate Shelf, Affirmed (P)A2
....Backed Senior Unsecured Shelf, Affirmed (P)A1
....Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)A1
....Backed Senior Unsecured Regular Bond/Debenture, Affirmed A1
Outlook Action:
....Outlook, Remains Stable
..Issuer: Unilever Finance Netherlands B.V.
Affirmation:
....Backed Senior Unsecured Regular Bond/Debenture, Affirmed A1
Outlook Action:
....Outlook, Remains Stable
..Issuer: Unilever PLC
Affirmations:
....Commercial Paper, Affirmed P-1
....Long-term Issuer Rating, Affirmed A1
....Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)A1
....Backed Senior Unsecured Regular Bond/Debenture, Affirmed A1
Outlook Action:
....Outlook, Remains Stable
..Issuer: Unilever N.V.
Withdrawals:
....Long-term Issuer Rating, Withdrawn , previously rated A1
....Senior Unsecured Commercial Paper, Withdrawn , previously rated A1
....Senior Unsecured Commercial Paper, Withdrawn , previously rated P-1
....Backed Senior Unsecured Medium-Term Note Program, Withdrawn , previously rated (P)A1
Outlook Action:
....Outlook, Changed To Rating Withdrawn From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
COMPANY PROFILE
With revenue of €52 billion and €8.7 billion operating profit in 2019, Unilever is one of the largest consumer products companies worldwide. It operates in three segments: Beauty and Personal Care, Foods and Refreshment, and Home Care. Unilever has a significant global presence, with products sold in more than 190 countries, and a strong exposure to emerging markets, which represented 60% of its revenue in 2019.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
REFERENCES/CITATIONS
[1] Unilever press release "Unification of Unilever's Corporate Structure -- Court Approval", November 2, 2020, published on the company's website https://www.unilever.com/Images/unification-of-unilevers-corporate-structure-court-approval_tcm244-556101_en.pdf.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Lorenzo Re
Vice President - Senior Analyst
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
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