Operating and Financial Review
Capital StructureDuring 2005 our market capitalisation increased by approximately £1.35 billion to £11.45 billion, principally due to a 65 pence increase in the share price during the year to 550 pence at 1 January 2006 (485 pence at 2 January 2005). Net borrowings increased during the year from £3,870 million at the end of 2004, to £3,900 million at the end of 2005, representing 34% of our total market capitalisation. We continue to manage our capital structure proactively to maximise shareowner value whilst maintaining flexibility to take advantage of opportunities, which arise to grow our business. One element of our strategy is to make targeted, value-enhancing acquisitions. It is intended that these will, where possible, be funded from cash flow and increased borrowings. The availability of suitable acquisitions, at acceptable prices is, however, unpredictable. Accordingly, in order to maintain flexibility to manage the capital structure, the Company has sought, and been given, shareholders approval to buy back shares as and if appropriate. This authority has only been used once, in 1999, when 24 million shares (representing approximately 1% of the Company's equity) were purchased. Renewal of this authority will be sought at the Annual General Meeting in May 2006. Additionally, many of the obligations under our share plans described in Note 26 to the Financial Statements will be satisfied by existing shares purchased in the market by the Cadbury Schweppes Employee Trust (the "Employee Trust") rather than by newly issued shares. The Employee Trust did not purchase any shares during 2005 or 2004 and held 22 million shares at the end of 2005, representing approximately 1.1% of the Company's issued share capital. |
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BorrowingsAt the end of 2005, the total of gross short-term and long-term borrowings was £4,279 million compared with £4,216 million at the end of 2004. Cash and cash equivalents decreased to £332 million at the end of 2005 compared to £325 million at the end of 2004. Our borrowings, net of cash and cash equivalents and short-term investments, increased to £3,900 million at the end of 2005, from £3,870 million at the end of 2004. At the end of 2005 £3,065 million of our gross debt was due after one year, but all debt due within one year was supported by undrawn committed facilities maturing after more than one year. Gearing is calculated as follows:
At the end of 2005, 84% of our net borrowings were either at fixed rates or converted to fixed rates through the use of interest rate swaps. It should be noted, however, that the year end is the low point in our seasonal borrowing cycle. Further information on our use of derivative financial instruments is given below. Interest cover was 5.7 times in 2005 compared with 4.4 times in 2004. At 1 January 2006 we had undrawn committed borrowing facilities of £1.1 billion. This relates to a revolving credit facility, which matures in 2010. The interest rates payable on this borrowing facility are LIBOR plus 0.225% to 0.38% per annum. This facility is subject to customary covenants and events of default, none of which are currently anticipated to affect our operations. In view of our committed facilities, cash and cash equivalents, short-term investments and cash flow from operations, we believe that there are sufficient funds available to meet its anticipated cash flow requirements for the foreseeable future. Our long-term credit rating has remained unchanged during 2005 at BBB. For 2006, debt levels at constant currencies are expected to reduce following the receipt of £1.26 billion proceeds funds from the sale of European Beverages and further free cash inflows. The Group's debt is largely denominated in foreign currencies (see Note 27). The Group's debt will depend on future movements in foreign exchange rates, principally the US Dollar and the Euro. Details of the currency and interest rate profile of our borrowings are disclosed in Note 27 to the Financial Statements. back to topContractual ObligationsAs at 1 January 2006:
As at 2 January 2005:
Estimated future interest rate payments on borrowings are based on the applicable fixed and floating rates of interest as at the end of the year for all borrowings or interest rate swap liabilities. The interest obligations in the above table have been calculated assuming that all borrowings and swaps in existence at year end will be held to maturity and are on a constant currency basis. Other non-current liabilities comprise trade and other payables, tax payable, long term provisions and obligations under finance leases. Deferred tax liabilities have not been included within other non-current liabilities as these are not contractual obligations that will be settled by cash payment. Expected payments into pension plans represents the best current estimate of the payments to be made into the scheme over the next three years. This is the period of time until the next full valuation of the Cadbury Schweppes Pension Fund, the scheme that represents over 70% of the Group's liabilities. We do not believe that it is possible to estimate with any accuracy the contribution rates that will arise subsequent to this valuation. The Company has guaranteed borrowings and other liabilities of certain subsidiary undertakings, the amounts outstanding and recognised on the Group Balance Sheet at 1 January 2006 being £4,064 million (2004: £3,898 million). In addition certain of the Company's subsidiaries have guaranteed borrowings of certain other subsidiaries. The amount covered by such arrangements as at 1 January 2006 was £3,607 million (2004: £3,592 million). Subsidiary undertakings have guarantees and indemnities outstanding amounting to £14 million (2004: £76 million). |
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