Fitch Ratings Affirms 'BBB-' Rating Of Coca-Cola Embonor.

Business Editors

CHICAGO--(BUSINESS WIRE)--April 4, 2003

Fitch Ratings affirms its 'BBB-' foreign and local currency credit ratings of Coca-Cola Embonor (Embonor). The Rating Outlook for Embonor remains Stable.

Embonor accounted for approximately 35% of The Coca-Cola Company's (Coca-Cola) sales in Chile and approximately 95% of its sales in Bolivia and Peru during 2002. The investment-grade rating of Embonor reflects the strategic importance of Embonor to Coca-Cola. This support was apparent during 1998 when Coca-Cola assisted the company, despite being a small regional bottler, in its purchase of the Peruvian and Chilean bottling operations of Inchcape PLC (Inchcape). Coca-Cola's support of Embonor was backed with financial assistance, as it spent approximately $284 million between 1998 and 1999 to increase its stake in the company from 8% to 44.4%.

Embonor's investment grade credit ratings also reflect the company's relatively strong business position in its Chilean and Bolivian territories, as well as the potential for growth of its business in Peru. The company ended the year with market shares of 57.1%, 50.1%, and 37.0%, respectively, in these markets.

Of the company's bottling territories, Peru is of particular importance for The Coca-Cola Company due to the low level of soft drink consumption. During 2002, Peruvians consumed approximately 71 Coca-Cola soft drinks per person, one of the lowest per capita consumption figures in Latin America. In an effort to build upon its leading position in the soft drink industry in Peru and to support Embonor, during 1999, Coca-Cola formed a strategic partnership with the second largest soft drink company in Peru, Corporacion Inca Kola (Inca Kola). The agreement between Coca-Cola and Inca Kola requires the partnership to distribute and market Inca Kola and its affiliated brands in Peru, and calls for The Coca-Cola Company to distribute and market these brands globally. In conjunction with this agreement, Coca-Cola took a 20% stake in Corporacion Jose R. Lindley S.A., Inca Kola's largest bottler, and a 50% stake in Inca Kola's brands.

During 2002, Embonor's consolidated sales volumes increased by 1.2% to 177 million unit cases (one unit case equals 24 eight ounce servings or 5.7 liters). The most important component of the company's beverage portfolio is its Coca-Cola products. These products accounted for 149 million unit cases of sales, growing by 0.6% from the prior year. Despite the growth in Embonor's volumes, due to lower prices, however, its consolidated sales declined to $332 million in 2002 from $353 million in 2001. Operating income plus depreciation and amortization (EBITDA) also declined to $63 million in 2002 from $72 million in 2001.

The decrease in Embonor's profitability was partially a result of the increased presence of discount brands, commonly referred to as b-brands, and private label brands in all three countries in which the company operates. These brands compete almost solely upon price. As a result, pricing pressure created by these inexpensive products led to a decline in the average local currency prices for Embonor's beverages during 2002. This problem was magnified when looking at the company's results in dollars because of the sharp devaluation of the Chilean peso, Peruvian Sol and Bolivian boliviano versus the U.S. dollar during 2002.

Embonor ended 2002 with $328 million of total debt and $36 million of cash and marketable securities. The company's interest coverage ratio, as measured by EBITDA-to-net interest expense, was 3.3 times (x) and its leverage ratio, as calculated by total debt-to-EBITDA, was 5.5x. While these credit protection measures remain weak for the 'BBB-' rating category, the Rating Outlook continues to be Stable due to Coca-Cola's significant stake in the company and its history of directly and indirectly supporting its most strategic bottlers.

In 2003, approximately $49 million of debt matures. During December 2002, the company registered with the Chilean securities commission for two potential peso denominated bonds that would total Unidades de Fomento (UF) 5 million ($115 million). If it decides to go forward with these bonds, it would use the proceeds to refinance its short-term debt plus pre-pay higher cost debt that remains outstanding. Depending upon the movement of exchange rates, Embonor should be able to generate between $60 million and $65 million of EBITDA during 2003. With capital expenditures expected to be approximately $20 million, net interest expense projected to be $20 million and taxes and dividends estimated to be zero during 2003, Embonor should generate about $20 million to $25 million that it can use for debt reduction.