Arnotts AA-/A-1+ Ratings Affirmed by S&P.

MELBOURNE, Australia--(BUSINESS WIRE)--S & P CreditWire 9/9/97--Standard & Poor's today affirmed its double-'A'-minus/'A-1'-plus ratings on Arnotts Ltd., following the company's recent announcement of a proposal to cancel all its ordinary shares other than those held by the U.S.-based Campbell Soup Co. (double-'A'-minus/Stable/'A-1'-plus) and Campbell's subsidiaries. The proposal, subject to approvals by shareholders and the relevant authorities, will result in Arnotts being the wholly owned subsidiary of Campbell.

Standard & Poor's views that the potential acquisition by Campbell will not have any rating impact on Arnotts in the medium to long term, given the existing relationship between the two companies. The ratings on Arnotts continue to reflect its linkage with the parent Campbell, Arnotts' strong profitability and strong cash flow generated by its leading market position in the stable Australian biscuit industry, continued improvement of its manufacturing efficiency, and moderate leverage.

Campbell currently holds about 70% interest in Arnotts, and the companies share product development, technologies, and management interchange. Campbell has rendered financial support in cases of need, because of the strategic importance of the Australian market to the parent. For example, earlier this year, Campbell helped Arnotts to increase backup facilities for its commercial paper program when Arnotts encountered potential cash flow problems caused by an extortion threat to its products. Arnotts' entry into the Asian markets, to some extent, is managed in conjunction with Campbell's operations in the region.

Arnotts holds 60% share of the relatively stable Australian biscuit market. Ongoing rationalization of its core biscuit manufacturing and distribution operations has resulted in significant cost reduction and consistent, well above-average profitability. The five-year operating margin until 1996 averaged 18.5%, together with a high return on capitalization of about 25%. While product range has been extended to snack foods, the August 1996 acquisition of Kettle Chip Co. has enhanced Arnotts' market position in this segment. However, margin pressure will increase, given the highly competitive market. Both efficiency gains from commissioning of the A$190 million Huntingwood plant by early 1997, and cost savings from a restructuring program, will be offset by the higher depreciation of the new plant, continued high rationalization cost, and increased financing costs in the next two years. Arnotts' overseas sales, particularly exports to Asian markets, have generated growth in biscuit volumes, but not yet have been profitable.

Leverage (debt-to-capitalization) increased in the past two years to about 34% at June 1997, compared with 8% in 1995, because of heavy financing of the Huntingwood project and ongoing capital expenditure. Leverage will likely increase marginally in the next two years. Earnings protection measures will decline, with pretax interest cover anticipated below 10 times.

OUTLOOK: Stable.

Continued heavy capital expenditure commitments and strategic acquisitions are mitigated by Arnotts' stable operating performance in the low-risk industry sector, Standard & Poor's said.---CreditWire.

CONTACT: Stella Shao, Melbourne (61) 3-9250-4577

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