Annual Report and Accounts 2006

Invest, innovate and execute

In beverages, following the completion of the Europe Beverages disposal in February 2006, and subsequent sale of our beverages businesses in Syria and South Africa, we are now focused on our strong regional businesses in North America and Australia. We delivered good revenue growth of 4% from these businesses in 2006 driven by investment behind and innovation in our core carbonated and non-carbonated flavour brands, and benefits from our strengthened route to market in the US. Our Mexican and Australian businesses both benefited from strong market growth.

In US carbonates, we grew share for the third year in a row. Most of our core flavour brands performed well as a result of innovation and improved execution, and from the continued shift from colas to non-colas within the carbonates category. Our share grew by 60 basis points, bringing the cumulative increase over three years to nearly 150 basis points.

US Carbonate Share Growth (bps)

Source: Nielsen

The reformulation and relaunch of 7 UP in May with an emphasis on natural ingredients returned the brand to growth in the second half. We capitalised on this momentum with the relaunch of Diet 7 UP in November. Dr Pepper and our other core flavour brands of Sunkist, A&W and Schweppes, continued to grow, with improved execution in the fountain channel benefiting Diet Dr Pepper.

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Strengthen non-carbonated drinks and route to market

In non-carbonates, our core four brands of Snapple, Mott's, Hawaiian Punch and Clamato grew by 3%. Improving the performance of Snapple was a particular focus in 2006, with the progressive launch of a range of super-premium Snapple White, Green and Red teas and higher promotional spend. Snapple's performance improved in the second half. We will be expanding the Snapple range further in 2007, with the launch of a range of super premium classic teas, and a limited range of Snapple mainstream teas in PET bottles manufactured and distributed by our company-owned bottling operations.

In 2006, we strengthened our route to market in the US by reinvesting some of the proceeds from the sales of our non-core beverages businesses in the acquisitions of US bottling companies. Together with our existing operations, over 40% of our volumes are now consolidated into a single, scale, company-owned manufacturing and distribution system. We believe that this consolidation will allow us to significantly reduce our manufacturing and distribution costs and enable us to drive higher revenue growth as we increase our penetration of higher growth, higher margin channels; to be more responsive to our customers' needs and to better align our commercial programmes. In addition, these acquisitions have also given us increased access to fast-growing categories such as water and energy drinks through distribution rights to brands such as Glaceau (vitamin enhanced water) and Monster (energy drink) and ownership of the Deja Blue water brand.

The largest of these acquisitions was Dr Pepper/Seven Up Bottling Group (now renamed Cadbury Schweppes Bottling Group or CSBG). We expect to realise synergies of US$120 million from this acquisition by 2010, with half realised by the end of 2008. We expect around a third of these synergies to come from cost savings, with the remainder from enhanced growth opportunities. We followed this with the purchase of two smaller bottling companies, All American Bottling Company and Seven Up Bottling Company of San Francisco, later in the year.

These acquisitions have already brought significant benefits. The integration of these bottlers is proceeding well and the performance of our core brands distributed through CSBG has improved, as a result of better execution with our retail partners, reduced complexity and costs, and greater alignment of brand and channel strategies.

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