Annual Report and Accounts 2006
The business today
Confectionery
Our confectionery strategy is to be the biggest and best global confectionery company by significantly growing our market share through organic growth and acquisition, in our three categories of chocolate, gum and candy. We believe that our strong positions in confectionery markets, by geography and by category, provide us with a robust platform for future growth.
Our growth to date has been both organic and through acquisition, notably Wedel in Poland (1999), Hollywood in France (2000), Dandy in Scandinavia (2002) and Adams (2003). The Adams business is now fully integrated and has exceeded our expectations. The returns from Adams exceeded its cost of capital in 2005, one year ahead of our target schedule.
In 2005, as in 2004, we had the number one share of the global confectionery market (source: Euromonitor 2005), and extended our share lead. We have the largest share of the global confectionery market at 9.9%, an increase of 20 basis points over the previous year (source: Euromonitor 2005). This compares with a market share of 5.2% in 2001. (source: Euromonitor 2005)
We have strong positions in many of the world's important confectionery markets. We have number one or two market shares in 22 of the top 50 (see table below), and strong positions in all of our geographic regions. We continued to strengthen our confectionery business in 2006, both through investment behind organic growth and through acquisitions.
We made acquisitions in three developing markets in 2006. In June 2006, we acquired Dan Products, South Africa's leading chewing gum business. In April 2006, we purchased a further 30% stake in Kent, our Turkish confectionery business, taking our stake to 95%. In February 2006, we increased our shareholding in Cadbury Nigeria to 50.02% (see table below).
Number of No. 1 or No. 2 positions in the Top 50 confectionery markets by geography
| Cadbury Schweppes |
Nestlé | Kraft | Mars | Wrigley | Ferrero | Hershey | |
|---|---|---|---|---|---|---|---|
| No. 1 position | 15 | 4 | 4 | 2 | 5 | 1 | 1 |
| No. 2 position | 7 | 10 | 5 | 5 | 2 | 4 | 1 |
| Total confectionery | 22 | 14 | 9 | 7 | 7 | 5 | 2 |
Source: Euromonitor 2005
Main confectionery acquisitions and disposals 1999-2006
| Date | Company | Country | Acquired/Disposed; percent holding |
Consideration | Description/Comments |
|---|---|---|---|---|---|
| Feb-99 | Wedel | Poland | Acquired 100% | £49 million | The number one chocolate brand in Poland at the time of acquisition |
| Aug-00 | Hollywood | France | Acquired 100% | Not disclosed | The number one gum business in France |
| Feb-02 | Cadbury India | India | Share increased from 49% to 94% | £111 million | Buy-out of the minority shares. By the end of 2006, our shareholding had reached 97.4% |
| May-02 | Kent | Turkey | Acquired 65% | US$95 million | Turkey's leading candy company |
| Sept-02 | Dandy | Denmark | Acquired 100% | £222 million | Fourth largest gum company world-wide at the time of acquisition with key markets in Scandinavia, Switzerland and Russia |
| Mar-03 | Adams | US | Acquired 100% | US$4.2 billion | Second largest gum business worldwide |
| Sept-04 | Moirs | South Africa | Disposed 100% | ZAR152 million | South African foods division |
| May-05 | Green & Black's | UK | Share increased from 5% to 100% | Not disclosed | Leading UK producer of luxury organic chocolate |
| Feb-06 | Cadbury Nigeria | Nigeria | Share increased from 46% to 50.02% | £20 million | Nigeria's leading candy and food beverages company |
| Apr-06 | Kent | Turkey | Share increased from 65% to 95% | £54 million | Turkey's leading candy company |
| Jun-06 | Dan Products | Botswana | Acquired 100% | £33 million | South Africa's leading gum business |
Our confectionery revenue is generated from products spanning the full range of the market: chocolate, gum and candy. The table below shows our leading market share in the global confectionery market (US dollar share), and our shares in each of these three categories.
Market share in the global confectionery market (US$ share)
| Global confectionery market |
Chocolate | Gum | Candy | |
|---|---|---|---|---|
| Cadbury Schweppes | 9.9% | 7.5% | 25.7% | 7.2% |
| Mars | 9.0% | 14.8% | – | 3.0% |
| Nestlé | 7.8% | 12.6% | 0.1% | 3.2% |
| Wrigley | 5.8% | – | 35.9% | 2.7% |
| Hershey | 5.5% | 8.2% | 1.1% | 2.7% |
| Ferrero | 4.4% | 7.3% | – | 1.5% |
| Kraft | 4.3% | 7.7% | 0.1% | 0.4% |
Source: Euromonitor 2005
The table below shows the change in percentage contributions to our confectionery revenue on both a product and a geographic basis between 1997 and 2006. In 1997, around 70% of our confectionery revenue was generated by chocolate. In 2006, chocolate accounted for around 45% of our revenue, gum 30% and candy 25%.
In 1997, nearly 90% of our confectionery revenues were generated in EMEA and Asia Pacific, particularly in the UK and Australia. In 2006 EMEA accounted for around a half and the Americas around 30%, as compared with just over 10% in 1997. In 2006, around one-third of our confectionery revenue was generated in emerging markets, spread across Latin America, Africa, Asia-Pacific and Eastern Europe/Russia.
Revenue contribution by product
Revenue contribution by region
We have 64 (2005: 67) confectionery manufacturing facilities. Our main confectionery brands are Cadbury, Bassett's, Dentyne, Halls, Hollywood, Stimorol, Dirol, Trebor, Trident and Wedel. Our brands have regional or local strengths, with the exception of Halls, which is sold in every one of our regions.
Beverages
Our beverages strategy is to be the best regional beverages business, by exploiting our portfolio through innovation and execution and expanding our platform through selected further bottling acquisitions in the US. Our beverages business is now concentrated in two regions, North America and Australia, where we have strong brands and effective routes to market.
During 2006, we sold our beverage businesses in Europe, Syria and South Africa, markets where we did not have sustainable competitive advantage. We also sold a number of non-core beverage brands in the US. The total consideration from these beverage disposals was £1.4 billion. In the Americas we operate in the US, Mexico and Canada, three of the world's 10 largest beverage markets. The business operates entirely within the North America Free Trade Agreement (NAFTA) region and generates high returns and cash flow. We increased the scale of our operations and expanded our brand portfolio, particularly in the non-carbonated sector of the beverages market, through the acquisition of Snapple in the US (2000), the Orangina brand globally (2001), and Squirt in Mexico (2002). Following the sale of Europe Beverages, we sell the Orangina brand under licence in the US and licence our US non-carbonated brands in Europe.
In the Americas, the combination of our three North American businesses - Dr Pepper/Seven Up, Mott's and Snapple - into a single cohesive unit during 2003 and 2004 enabled us to leverage our powerful soft drinks brand portfolio, in both flavoured carbonates (including Dr Pepper, 7 UP, Sunkist and A&W), and in non-carbonates (including Snapple and Mott's). Having increased our share of the US carbonated soft drinks market in 2005 by 40 basis points to 17.0%, we grew our share further in 2006 to 17.6%. Together, our US beverages and confectionery businesses make us the 10th largest food supplier to the US grocery trade. Similarly in Australia, our combined confectionery and full system beverages businesses make us the third largest supplier of food products to the grocery trade.
In 2006, we significantly strengthened the route to market for our US beverages businesses by the acquisition of the 55% we did not already own of Dr Pepper/Seven Up Bottling Group and two other bottling companies.
Main beverages acquisitions and disposals 2000-2006
| Date | Company | Country | Acquired/Disposed; percent holding |
Consideration | Description/Comments |
|---|---|---|---|---|---|
| Oct-00 | Pepsi Lion Nathan | Australia | Acquired 100% | Not disclosed | Acquired the bottling and franchise rights to Pepsi's brands in Australia |
| Oct-00 | Snapple | US | Acquired 100% | £1.2 billion | Leading US premium non-carbonated
beverages business. Main brands were Snapple, RC Cola and Mistic |
| Jul-01 | La Casera | Spain | Acquired 100% | £65 million | Spain's third largest soft drinks producer |
| Oct-01 | Orangina | France | Acquired 100% | £445 million | Soft drink brands in Continental Europe, North America and Australia |
| Feb-02 | Squirt | Mexico | Acquired 100% | Not disclosed | Acquisition of the Squirt brand in Mexico. We already owned the Squirt brand in the US |
| Nov-02 | Apollinaris & Schweppes | Germany | Share increased from 28% to 100% | £115 million | Buy-out of the remaining 72% interest in our German associate |
| Feb-06 | Europe Beverages | France, Spain and Germany | Disposed 100% | €1.85 billion (£1.26 billion) |
Sale of our remaining Europe Beverages businesses |
| May-06 | Dr Pepper/Seven Up Bottling Group | US | Share increased from 45% to 100% | US$353 million (£201 million) |
Acquisition of the largest independent of Dr Pepper/Seven Up Bottling Group debt assumed |
| June-06 | All American Bottling Company | US | Acquired 100% | £32 million | Acquisition of US independent bottler bottler in the US; in addition, £343 million |
| Aug-06 | Bromor Foods (Pty) Limited | South Africa | Disposed 100% | £109 million | Sale of our South African beverages business |
| Aug-06 | Seven-Up Bottling Company of San Francisco | US | Acquired 100% | £26 million | Acquisition of US independent bottler |