BRINGING THE WORLD MOMENTS OF ANNUAL REPORT AND FORM 20-F 2001 Contents Page 1 Business Review 2001 1 2 Description of Business 29 3 Operating and Financial Review 39 4 Report of the Directors 59 5 Financial Record 79 6 Financial Statements 87 7 Shareholder Information 141 Glossary 159 Cross reference to Form 20-F 160 Index 162 This is the Annual Report and Form 20-F of Cadbury Schweppes public limited company for the year ended 30 December 2001. It contains the annual report and accounts in accordance with UK generally accepted accounting principles and regulations and, together with the Form 20-F to be filed in April 2002 with the US Securities and Exchange Commission, incorporates the annual report on Form 20-F for the US Securities and Exchange Commission. A Summary Financial Statement for the year ended 30 December 2001 has been sent to all shareholders who have not elected to receive this Annual Report and Form 20-F. The Annual General Meeting will be held on Thursday, 9 May 2002. The Notice of Meeting, details of the business to be transacted and arrangements for the Meeting are contained in the separate Annual General Meeting booklet sent to all shareholders. 1 Business Review 2001 Group Strategy Statement 2 This is Cadbury Schweppes! 4 Corporate and Financial Highlights 6 Moments of Delight – Confectionery 8 1 Chairman’s Statement 10 Moments of Delight – Beverages 12 Chief Executive Officer’s Review 14 A Snapshot of our Industry 20 Chief Operating Officer’s Review 22 Corporate and Social Responsibility 26 Contents Inside Front Cover Glossary 159 Cross reference to Form 20-F 160 Index 162 Annual Report and Form 20-F 2001 Cadbury Schweppes 1 WE ARE passionate ABOUT TO CREATE BRANDS BRANDS THAT BRING THE delight AND A SPLASH 2 Cadbury Schweppes Annual Report and Form 20-F 2001 WORKING TOGETHER THAT PEOPLE love. world MOMENTS OF OF colour ON A GREY DAY. Annual Report and Form 20-F 2001 Cadbury Schweppes 3 1 Business Review 2001 THIS IS CADBURY SCHWEPPES! Cadbury Schweppes’ governing OBJECTIVE is growth in shareowner value. The STRATEGY by which we will achieve this objective is to: – Focus on our core businesses of Beverages and Confectionery. – Develop robust and sustainable positions in regional markets. – Grow organically and via acquisition. MANAGING FOR VALUE is the process which supports the achievement of our strategy. This map is for illustrative purposes only. “Sunkist” is a registered trademark of Sunkist Growers, Inc. 4 Cadbury Schweppes Annual Report and Form 20-F 2001 Cadbury Schweppes is a major INTERNATIONAL beverage and confectionery company. Today, we employ over 38,000 PEOPLE and our products are available in almost 200 COUNTRIES around the world. We are one of the world’s top four CONFECTIONERY businesses. With manufacturing in 25 countries, our chocolate, sugar and gum brands can be found almost everywhere. And we are one of the top three SOFT DRINKS companies in the world. Our range of drinks – carbonated and still, fruit juices and fruit flavoured drinks, teas, water and flavoured milks – are enjoyed by millions of consumers in our three key markets of North America, Continental Europe and Australia. Annual Report and Form 20-F 2001 Cadbury Schweppes 5 1 Business Review 2001 – Corporate and Financial Highlights 2001was an EXCELLENT year for the Groupwith TARGETS for underlying earnings growth and free cash flow both being EXCEEDED. At the same time SUBSTANTIAL investments were made behind GROWING the business for the longer term. Managing for Value – 5th Year of Delivering Against Targets 1997–2000 2001–2004 Target Actual Target 2001 Underlying* EPS (per annum) 10%+ 11% 10%+ 14% Free cash flow (average) £150m+ £252m £300m+ £397m Total shareowner return (“TSR”) +100% +84% +100% +11% *at constant currencies and excluding restructuring, goodwill amortisation and disposal gains and losses We saw excellent performances from our BEVERAGES operations led by Mott’s and Europe Beverages. While in CONFECTIONERY there was strong financial and volume growth in many markets. 6 Cadbury Schweppes Annual Report and Form 20-F 2001 % change As At constant 2001 2000 reported exchange rates Turnover £5,519m £4,575m +21 +19 Trading profit (a) £930m £775m +20 +18 Trading margin (a) 16.9% 16.9% – –1 Profit before tax and disposals (a) £886m £792m +12 +10 Basic earnings per share 27.0p 24.8p +9 +7 Underlying earnings per share (a) 30.0p 25.8p +16 +14 Net dividend per share 11.0p 10.5p +5 n/a Capital expenditure £240m £126m +90 +90 Marketing expenditure £1,081m £887m +22 +18 Free cash flow £397m £401m –1 n/a Group employees 38,489 36,460 +6 n/a (a) Excluding major restructuring costs, goodwill amortisation and disposal gains and losses We continued to make ACQUISITIONS to strengthen our EXISTING businesses and BROADEN OUR PORTFOLIO of products. Our EMERGING market businesses made a STRONG CONTRIBUTION to the overall results. Annual Report and Form 20-F 2001 Cadbury Schweppes 7 WE WANT PEOPLE TO AND wherever THE impulse THE RIGHT TIME FOR 8 Cadbury Schweppes Annual Report and Form 20-F 2001 choose US whenever STRIKES. ANYTIME’S A MOMENT OF delight. Annual Report and Form 20-F 2001 Cadbury Schweppes 9 1 Business Review 2001 – Chairman’s Statement THE GROUP HAD AN EXCELLENT ‘YEAR‘ IN 2001 DEREK BONHAM, Chairman, discusses the main highlights than last year of which 15% was of the year, the Group’s strategic development and prospects for attributable to acquisitions. Underlying the future. trading profit before restructuring and amortisation of acquisition goodwill rose The Group had an excellent year in 20% to £930 million with acquisitions 2001. We exceeded our targets for both contributing 10%. Snapple Beverage underlying earnings growth and free cash Group, acquired in October 2000 flow. Substantial investments were made accounted for the significant proportion behind growing the business for the of the acquisition contribution to both longer term. Acquisitions during the sales and trading profit. The trading year strengthened existing positions, margin was held at 16.9%. TARGETS for earnings growth and free cash flow were EXCEEDED once again particularly in Europe Beverages. Pre-tax profit before restructuring, A sharp increase in capital spend amortisation of acquisition goodwill and reflected both investment in improving exceptional items rose 12% to £886 million. efficiencies and new capacity. A further Earnings per share on the same basis increase in the marketing to sales ratio rose 16% to 30.0p. Excluding the impact demonstrates our commitment to of currency movements the increase supporting the consumer franchises of was 14%, well in line with our 10% plus our brands. earnings growth target. Free cash flow generation at PERFORMANCE £397 million was comfortably in excess Sales at £5.5 billion were 21% higher of our target of at least £300 million. 10 These excellent results were for example the expansion of achieved against a backdrop of a our non-carbonates presence in significant increase in investment in the US through the purchase of building the business for the longer Snapple and the entry into European term. Investment in marketing rose gum through the purchase of by nearly £200 million to £1.1 billion Hollywood in France. with the marketing to sales ratio rising In 2001, our beverage business was from 19.4% to 19.6%. Capital spend significantly strengthened in Europe was increased from £126 million to through the acquisitions of La Casera in £240 million with further increases Spain and Orangina in France. In the planned for 2002. US, ReaLemon/ReaLime was a useful addition to Mott’s speciality product DIVIDENDS line-up. Early in 2002, we announced The Board has recommended a final that we were acquiring a 51% stake in dividend of 7.65p bringing the total Kent, the leading sugar confectionery CSR report on pages 26 and 27. This year dividend for 2001 to 11.0p, an increase of business in Turkey. we will be publishing our first separate 5% over 2000. This recognises the desire CSR report. of some of our shareowners for a real THE BOARD increase in income while allowing Dr Franz Humer, Deputy Chairman, EMPLOYEES dividend cover to rise modestly. resigned from your Board in January On behalf of the Board, I would once 2002 following his appointment as again like to thank all the employees for STRATEGIC DEVELOPMENT Chairman of Roche Holdings in April their individual and collective efforts The introduction of Managing for Value 2001 and subsequent decision to resign which have contributed to the strong in 1997 fostered a deeper understanding from all other non-executive posts. results produced by the Group in 2001. of, and commitment to, the optimal Dr Humer contributed significantly to ‘ PROSPECTS ‘ These are uncertain times. Liquidity is The results were achieved against a becoming more of an issue and the new high technology businesses are coming backdrop of a SIGNIFICANT increase under pressure. Despite the slow-down in economic activity, we look to the future in INVESTMENT with confidence and believe that we will deliver results in line with our stated allocation of resources throughout the the development of Board policy since earnings growth and cash flow targets. business. In the early years of the his appointment in 1994. We will miss programme, management was focused on his valued counsel and wish him well in increasing returns such that the profit his future career. being made on the Group’s operations Dr Wolfgang Berndt, formerly of comfortably exceeded the cost of the The Procter & Gamble Company, joined capital deployed in the business. This the Board of Cadbury Schweppes as a improvement was achieved through a Non-Executive Director in January 2002.