DBRS Confirms Coca-Cola Enterprises Inc. at “A” & R-1 (low)

Dominion Bond Rating Service (“DBRS”) has today confirmed the ratings of Coca-Cola Enterprises Inc. (“CCE” or the “Company”) as indicated above, based on its stable franchise and implicit support from The Coca-Cola Company (“Coke”) – AA (low), see separate report. These factors allow CCE to withstand intense competitive pressures and shifts in consumer preferences.

CCE has the exclusive right to manufacture, sell, and distribute Coke beverages in most of North America (the world’s largest market), Britain, France, the Netherlands, and Belgium. CCE’s bottling and distribution represents approximately 20% of Coke’s global beverage volume. As Coke’s largest bottler, CCE possesses a significant and relatively stable base of sales, albeit low growth. The earnings are driven by the strength of the brands, good economies of scale, and a well established distribution system.

As Coke owns approximately 36% of CCE’s common stock, it is unlikely it would let a key bottler fail. Thus, while Coke does not guarantee CCE’s debt, the bottler network is critical to Coke’s success. Moreover, if CCE’s results deteriorated, they could pressure Coke’s credit ratings.

The key challenge to CCE’s financial profile will be its ability to stabilize and eventually establish growth in cash flow. DBRS expects operating income to remain relatively flat again for 2006, as margins are expected to remain under pressure. The challenge will be to maintain/grow volumes while implementing price increases to cover rising costs.

Growth in volume should remain difficult to achieve due to consumer (health and wellness) and demographic trends, and highly competitive nature of the North American and northwestern European markets. Sales growth will rely on continuous and successful new product development, and investment in marketing.

In terms of financial profile, CCE used all of its free cash flow for debt reduction in 2005. The Company has focused on debt reduction since 2002, and has lowered net debt by US$2 billion (to US$10 billion) during this period. CCE is expected to continue to use most of its free cash flow to reduce absolute debt levels going forward.