DBRS Resolves Under Review - Confirms Cadbury Holdings Limited at BBB, Stable Trend

DBRS has today confirmed the issuer and guaranteed notes ratings of Cadbury Holdings Limited (formerly named Cadbury Schweppes plc) and related entities (Cadbury or the Company) at BBB and the commercial paper rating at R-2 (high). The trends are Stable. Today's action removes Cadbury from Under Review with Developing Implications, where it was placed on March 15, 2007, following the Company’s announcement of its plans to separate its Confectionary and Americas Beverage businesses. DBRS’s review focused on the corporate structure (including capitalization), business plan and financial strategy of the confectionary business. DBRS notes that the Company’s ratings were unchanged following our review.

On May 7, 2008, Cadbury Schweppes plc (which had been renamed Cadbury Holdings Limited) began operating exclusive of its Americas Beverages unit, which was officially demerged and renamed Dr. Pepper Snapple Group. Although the Americas Beverages unit was a significant contributor to the Company’s overall results, providing roughly half of Cadbury's operating earnings, DBRS believes Cadbury as a stand-alone confectionary business continues to warrant a BBB rating. DBRS’s opinion is largely based on the Company’s capitalization. Following the demerger, the Company’s net debt position was GBP1.7 billion (at June 30, 2008), resulting in net debt-to-EBITDA of 2.2x and overall credit metrics consistent with a BBB rating. The ratings also reflect Cadbury’s leading global market share, strong presence in high growth emerging markets and diversified brand portfolio, as well as the confectionary business’ lower margin operations, strong competition and the ongoing pressure from rising commodity costs.

Leading market share, especially in high growth emerging markets, combined with innovation of the Company’s strong brand portfolio has been a key driver of growth. Cadbury’s confectionary business has gained market share each year since 2003 and grown at a CAGR of 6.2% during that time, consistently exceeding industry growth rates. At YE 2007, the Company had sales of GBP5.1 billion, recurring operating earnings of GBP497 million and controlled roughly 10.1% of the global confectionary market, ahead of Mars at 9.0% and Nestle at 7.6%.

Going forward, DBRS expects Cadbury’s strengths, combined with increased marketing spend will continue to support top-line growth. To date, Cadbury’s strong brand portfolio has enabled the Company to implement pricing and mix improvements that have offset most of the impact of rising costs. However, DBRS expects pricing increases will become more difficult to pass on over time, challenging the Company to meet its long-term mid-teen operating margin target (operating margins currently at 9.8%). DBRS notes however, that the Company is taking considerable cost-cutting measures to help maintain margin growth, including efforts to trim headcount, rationalize the product portfolio and close factories.

Going forward, DBRS believes Cadbury’s management will focus on improving its current investment grade credit rating and therefore DBRS does not expect material debt financed share repurchases or acquisitions in the near term. DBRS expects restructuring activities will continue to use most of the Company’s free cash flow in F2008, therefore we expect debt levels to remain fairly stable, keeping Cadbury well placed in the current rating category. Beyond F2009 restructuring costs and related capex are expected to decline contributing to improved free cash flow levels. DBRS believes the Company’s ratings could improve beyond F2009, should the Company display improvement in operating margins/income and/or use free cash flow to reduce debt, in a way that leads to a meaningful improvement in credit metrics.

Note:
All figures are in U.K. pounds unless otherwise noted.