2002 Reports and Accounts and Forms
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CADBURY SCHWEPPES PUBLICSCHWEPPES CADBURY COMPANY LIMITED 20-F REPORTFORM AND 2002 ACCOUNTS & working together to create brands www.cadburyschweppes.com people love www.cadburyschweppes.com/investor Report & Accounts and Form 20-F 2002 Contents Page Description of Business 1 Operating and Financial Review 13 Report of the Directors 35 Report on Directors’ Remuneration 45 Financial Record 59 Financial Statements 67 Additional Information for Shareholders 131 Glossary 143 Cross reference to Form 20-F 144 Index 146 This is the Report & Accounts and Form 20-F of Cadbury Schweppes public limited company for the year ended 29 December 2002. It contains the annual report and accounts in accordance with UK generally accepted accounting principles and regulations and a reconciliation to US generally accepted accounting principles. Together with the Form 20-F to be filed in April 2003 with the US Securities and Exchange Commission, it incorporates the annual report on Form 20-F for the US Securities and Exchange Commission. The Annual General Meeting will be held on Thursday, 8 May 2003. 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. Cadbury Schweppes Report & Accounts and Form 20-F 2002 Description of Business Introduction 2 Group Strategy 2 Business Segments 2 Group Development 4 2002 5 2001 5 2000 6 Competition 6 Trademarks and Brands 7 Employees 7 Learning and Development 7 Employee Involvement 8 Equal Employment Opportunities and Diversity 8 Disabled Persons 8 Pensions 8 Properties 8 Research and Development 9 Environment 10 Customers and Suppliers 10 Raw Materials 10 Ethical Trading and Human Rights 10 Government Regulations 11 Report & Accounts and Form 20-F 2002 Cadbury Schweppes 1 Description of Business Introduction Cadbury Schweppes plc (the “Company”) and its subsidiaries and associated undertakings (the “Group”) are principally engaged in the manufacture and distribution for sale of branded beverages and confectionery, and related foods, supplied through wholesale and retail outlets of the confectionery, licensed, catering and grocery trades in almost 200 countries throughout the world. The Group is focused on the beverages and confectionery businesses, two closely related consumer markets, and manages an extensive portfolio of brands. In 2002, the Group had net sales from continuing operations of £5,298 million and operating profit from continuing operations before major restructuring costs, goodwill amortisation, operating profit on associates and profits and losses on disposals of £983 million. Group Strategy Cadbury Schweppes’ governing objective is growth in shareowner value. In pursuit of this the Group’s strategy is to create robust and sustainable regional positions in its core categories of confectionery and beverages through organic growth, acquisition and disposal. The progress of the Group in this respect is measured against three targets: to increase underlying earnings per share (as defined on page 77) at constant currencies (before adjusting for exchange rate movements during the year) by at least 10% every year; to generate £300 million of free cash flow every year; and to grow the value of shareowners investment in Cadbury Schweppes as measured by the growth in total shareowner return (“TSR”) which is the appreciation in the capital value of the shares including reinvested dividends. In 2002, the Group changed its TSR target from an absolute measure of doubling TSR every four years, to a relative measure of top quartile TSR performance against a range of international consumer goods companies over a rolling four year period. The relative measure of TSR growth is considered more appropriate given the significant influence of macro economic and political factors on the performance of the world stock markets and thus Cadbury Schweppes’ share price. The business process by which the strategy is pursued is Managing for Value (“MFV”). Introduced into the Group in 1997, MFV is an holistic approach to value creation. It includes: setting stretching financial targets; adopting value based management principles in our business processes, both operational and strategic; raising capabilities at all levels of the organisation and aligning management incentive schemes with the interests of shareowners. Business Segments During 2002, the Group had six business regions comprising North America Beverages, Europe Beverages, Europe Confectionery, Americas Confectionery, Asia Pacific and Africa, India and Middle East. In confectionery, the Group has manufacturing facilities in 25 countries and markets a broad range of chocolates, gum and sugar confectionery brands in over 170 countries in the form of bars, blocks, bagged products, packets, rolls, boxed assortments, chocolate eggs and novelties. Products are sold through confectionery outlets, garage forecourts, convenience and grocery stores and kiosks. In its principal markets, products are sold through the Group’s own sales and distribution organisations. The chocolate confectionery market overall has a seasonal bias towards increased sales in the colder months and on special gift occasions such as New Year, Mother’s Day, Easter, Hallowe’en and Christmas. In beverages, the Group operates both as a manufacturer and as a licensor. It has wholly owned manufacturing operations in 9 countries, the most significant of which are in Australia, Mexico, Spain and the US. It has partnership arrangements in 7 countries of which the most significant are in the US and France. In 21 countries – including the US – the Group acts as a brand licensor, selling concentrate and syrup to independently owned manufacturers (certain of which are affiliated to competitors) to which it also supplies technical and marketing support. 2 Cadbury Schweppes Report & Accounts and Form 20-F 2002 The Group’s beverage products are sold to the consumer through many different outlets, ranging from grocery stores to garage forecourts and fountain equipment at leisure, food and entertainment venues. Beverages sales are to some extent seasonal, with peaks in the summer months and at festive seasons such as Christmas. The North America Beverages region comprises Dr Pepper/Seven Up (“DPSU”), Mott’s and Snapple Beverage Group. The principal products of DPSU are carbonated soft drinks, with the key brands being Dr Pepper and 7 UP (which the Group owns in the US and Puerto Rico only). Other important brands include Schweppes, Canada Dry, A&W, Hawaiian Punch and Squirt. Licensed products include Sunkist, Crystal Light, Country Time and Welch’s. DPSU operates as a licensor, selling concentrate to independently owned bottling and canning operations, including Dr Pepper/Seven Up Bottling Group (“DPSUBG”), in which the Group has a 40% shareholding. DPSUBG is an independent bottling company operating in Texas, California and 17 other Western and Midwestern states. DPSU provides marketing support and technical manufacturing oversight. The processes and operations of these independently owned bottlers and canners are monitored to ensure high product standards. DPSU enters into licensing agreements with local bottlers. In the normal course of business, changes to these agreements are made to reflect changing business conditions, including the addition or deletion of certain brands. Mott’s produces Mott’s apple brands, Clamato juices, Hawaiian Punch and a variety of speciality products which are produced for the North American market and for export. Mott’s manufactures, bottles, markets and sells its products, although some sales are made through independent brokers. Products are sold in cans, glass bottles, plastic bottles and aseptic packages. Snapple Beverage Group is a US premium beverage company whose brands include Snapple, Mistic, Stewart’s, Orangina, Yoo-Hoo and Nantucket Nectars. Snapple is the leading brand in the profitable high growth premium ready-to-drink tea and juice sector of the New Age beverage market. In May 2002, Snapple strengthened its portfolio by acquiring the Nantucket Allserve business, which produces premium high juice and fresh juice drinks. Europe Beverages’ key markets are Spain, France and Mexico. In 2002, the Group acquired Squirt, a leading grapefruit carbonated soft drink brand in Mexico, and gained full control of the Apollinaris & Schweppes business in Germany. Principal products comprise carbonated soft drinks, mineral waters and still drinks, with key brands including Schweppes, Orangina, Oasis, Gini, Pampryl, Penafiel, Trinaranjus, La Casera, Squirt, Apollinaris, Heppinger and Big Apple. This region has bottling and partnership operations and licenses its brands in other countries. The Europe Confectionery region includes all the Group’s interests in this market including Russia. The UK is the Group’s single largest confectionery market in Europe where it sells brands under the Cadbury, Trebor, Bassett’s, Fry’s, Maynards, Sharps, Barratt and Butterkist names. Products include Cadbury’s Dairy Milk, TimeOut, Picnic, Roses, Heroes, Cadbury’s Eclairs, Trebor Softmints, Bassett’s Liquorice Allsorts and Bassett’s Jelly Babies. The Group’s key confectionery brands in Continental Europe include Poulain, Hollywood and La Pie Qui Chante in France, Cadbury and Wedel in Poland, Dulciora in Spain, Stimorol and V6 in Denmark and Cadbury and Dirol in Russia. Within Continental Europe, France is the biggest operating unit and, in 2002, the Group acquired Dandy in