Annual Report 1996 Pauffley PRL AR 1996 Proof 5 Date: 14.3.1997 Cover photography Contents Cadbury Ltd is the Page UK’s leading chocolate confectionery manufacturer 2 Year at a Glance with a 30% share of the 4 Chairman’s Statement £3.4 billion chocolate 6 Group Chief Executive’s Review market. The Cadbury’s Dairy Milk Megabrand – Cadbury’s 8 The Business of Cadbury Schweppes Dairy Milk, Fruit & Nut and 10 Beverages Stream Review Wholenut – had a volume 18 Confectionery Stream Review share of over 46% of the moulded sector in 1996. 26 Environment, Community and Development Schweppes’ famous Indian Tonic Water has been 30 Corporate Governance available since the 1870s and today the Schweppes range 32 Board of Directors is sold in over 85 countries around the world. 34 Report of the Directors The distinctive plastic bottle reflects a major British innovation in bottle technology. 39 Report of the Remuneration Committee 46 Financial Review 52 Financial Ratios and Stream Analysis Produced in Egypt since 54 Group Financial Record 1990, Cadbury’s Dairy 56 Statement of Directors’ Responsibilities Milk range now has 56 Auditors’ Report on Financial Statements almost 50% of the Egyptian moulded chocolate 57 Accounting Policies market. Egypt, with a 60 Group Profit and Loss Account population of 60 million, 61 Recognised Gains and Losses is the largest confectionery market in 61 Movements in Shareholders’ Funds the Middle East and 62 Balance Sheets North Africa. 63 Group Cash Flow Statement Popular in Egypt since 1982, the Schweppes brand was 64 Sales, Trading Profit, Operating Assets re-launched in June 1996 under new licence and bottling and Trading Margin Analysis arrangements. In addition to Schweppes Tonic, enjoyed by 65 Notes on the Accounts many consumers in the 15-30 age group, the Schweppes 89 US GAAP range includes Tangerine, Orange, Apple, Cloudy Lemon and Soda. 90 Additional Shareholder Information 94 Index The Annual General Meeting will be held on Thursday, 8 May 1997. 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. Pauffley PRL AR 1996 Proof 5 Date: 14.3.1997 Cadbury Schweppes is a major global company in beverages and confectionery whose quality brands and products are enjoyed in over 200 countries around the world. Our task is to build on our traditions of quality and value to provide brands, products, financial results and management performance that meet the interests of our shareholders, consumers, employees, customers, suppliers and the communities in which we operate. Route to market: Product innovation: Mexico, pages 12-13 UK, pages 20-21 Key brands: Canada, pages 24-25 Understanding our markets: Chile, pages 16-17 ■ UK ■ Europe ■ Americas ■ Pacific Rim ■ Africa & Others 1 Pauffley PRL AR 1996 Proof 5 Date: 14.3.1997 Year at a Glance Beverages Stream ■ Dr Pepper continues to outpace the growth of the US market ■ 7 UP stabilises its position in the US against intense competition ■ New long term licensing agreements for our key brands in the US and UK ■ Acceleration of international roll-out of our beverages brands ■ Major restructuring of our French beverages business with San Benedetto joint venture ■ Sale of Coca-Cola & Schweppes Beverages for £623 million completed in February 1997 Confectionery Stream ■ Strong growth in many markets after a difficult 1995 ■ Substantial increases in sales and profits in Canada following acquisitions of Allan Candy and Neilson Cadbury ■ World class chocolate confectionery manufacturing facilities established in Russia and China ■ Cadbury Poland trading profitably in only its second full year of operation ■ Craven Keiller acquisition strengthens our leadership position in UK sugar confectionery 1996 1995 % Increase Sales £5,115m £4,776m 7.1 Trading profit £671m £600m 11.8 Trading margin* 13.9% 13.6% 0.3 Profit before tax and disposals £592m £512m 15.6 Earnings per Ordinary Share (FRS 3) 34.1p 31.3p 8.9 Underlying Earnings per Ordinary Share 34.1p 29.9p 14.0 Net Dividend per Ordinary Share 17.0p 16.0p 6.3 Capital expenditure £249m £238m 4.6 Marketing expenditure £738m £681m 8.4 Underlying free cash flow £137m £100m 37.0 Total Group employees 42,911 41,789 2.7 *Excluding restructuring costs 2 Pauffley PRL AR 1996 Proof 5 Date: 14.3.1997 Profit Trading margin* Trading margin* £m Beverages Stream Confectionery Stream Profit before tax and disposals per cent per cent Operating profit 800 16 16 700 14 14 600 12 12 500 10 10 400 8 8 300 6 6 200 4 4 100 2 2 0 0 0 92 93 94 95 96 92 93 94 95 96 92 93 94 95 96 Interest charge cover Underlying Earnings per Share price times Ordinary Share† Annual high and low Dividends per Ordinary Share prices per Ordinary Share pence pence Earnings Dividends 12 35 600 30 10 500 25 8 400 20 6 300 15 4 200 10 2 100 5 0 0 0 92 93 94 95 96 92 93 94 95 96 92 93 94 95 96 *Excluding major restructuring costs †Excluding gains and losses on disposals of subsidiaries 3 Pauffley PRL AR 1996 Proof 5 Date: 14.3.1997 Chairman’s Statement In 1996, turnover at over £5.1 billion increased by 7% and profit before tax and disposals of £592 million was 16% higher. Underlying earnings per share at 34.1p show an increase of 4.2p, up 14%. The Board is recommending a final dividend of 11.8p giving a total of 17.0p per Ordinary Share for the full year, 6% over 1995. 1996 was a successful and licensor to their businesses in important year reflected in record both the UK and North America. financial results, significant We made two acquisitions strategic developments and the during the year. In January appointment of a new Executive Neilson Cadbury brought us Board team. Our established market leadership in chocolate businesses forged ahead and in confectionery in Canada and in many cases increased share of May Craven Keiller reinforced their markets. Our recent Trebor Bassett’s leadership of the investments and expansions made UK sugar confectionery market. significant contributions to Group I welcome their employees to the Dominic Cadbury Chairman results in North America, Eastern Cadbury Schweppes Group. Europe, Africa and India. We have Our strong cash flow enabled successfully established us to cover all our distributions confectionery operations in Russia and the two acquisitions in 1996 and China and, while these from within our own resources represent investments in the and at the same time reduce future, they are important in borrowings compared with last developing a credible global year. strategy. We completed the sale of our Corporate Responsibility 51% interest in CCSB in February We describe our Group-wide 1997 and this transaction frees up activities in the areas of corporate management and cash resources governance and citizenship in to focus on the priority of separate sections of this Annual managing and growing our own Report. Cadbury Schweppes has brands. Since 1987 CCSB has been awarded Investor in People transformed the UK beverages (‘‘IIP’’) recognition for its UK market as well as delivering headquarters in addition to IIP outstanding financial results and recognition for many of our I would like to congratulate and operations. It is relatively rare for a thank all those who have played a UK multi-national headquarters to part. We look forward to working achieve IIP status and reflects our with CCE, the new owners, in our determination that every employee capacity as a long term brand in the Cadbury Schweppes Group 4 Pauffley PRL AR 1996 Proof 5 Date: 14.3.1997 will have a career plan and the The Board The Future opportunity to acquire the The Board has experienced The global opportunities in our qualifications to achieve their considerable change with the core markets of beverages and personal ambitions and potential. retirements, in 1996, of David confectionery continue to offer In the UK, in conjunction Wellings, Karl von der Heyden, exciting growth potential. with Business in the Community Frank Swan and Dick Stradwick. We respect the skill and size of (‘‘BITC’’), we have provided Early in 1997, Derek Williams, who our competitors but Cadbury leadership to the development and had led the CCSB team with Schweppes has the resources, the understanding of Cause Related distinction, resigned when we sold skills and above all the people to Marketing (‘‘CRM’’) activities. our 51% interest in CCSB. At the compete effectively. 1996 was CRM links companies’ promotional time of the AGM this year, Gordon evidence of that and on behalf programmes with charitable Waddell and Anna Vinton will of shareholders I thank everyone causes for mutual benefit and in retire as Non-Executive Directors. who made it another year of this way enables marketing Board succession is a key factor in record results. activities and investment to benefit the progress of any company and At this early stage of the year directly the needs of the in maintaining fresh direction over we are confident of further growth community. Our leadership of the a company’s affairs. In their and success in 1997 despite the initiative is helping BITC to be the different roles and responsibilities impact of the stronger pound. acknowledged centre of excellence my retiring colleagues have made in this field. vital and valuable contributions to Whether we are supporting the Group’s progress in recent schools in areas where we are years. I am delighted that the locating in developing markets, strength and experience of our such as India and Poland, or being management has enabled the Dominic Cadbury actively involved in educational retiring Executive Directors to Chairman business partnerships and CRM in be replaced from within our the UK, we focus our community own ranks.