Strategy Review

Goal 2: Profitably and significantly increase our global confectionery share

2005 Priorities

• Invest, innovate and execute
• Execute Smart Variety

The ambition behind our second goal is to grow our share of the global confectionery market both organically and by acquisition. We are making excellent progress through investing in our business and delivering great innovation.

Before we bought Adams in 2003, we were the fourth largest confectionery company with a global share of 6.6%. Our purchase of Adams increased our share by around one half, giving us the second largest share globally. Over the last two years, our share has increased further, with Euromonitor's recently published data for 2004 giving us clear leadership of the global confectionery market with a share of 10.0%.

Global confectionery market shares

	Excluding Adams (2003)	Including Adams (2003)	2004
Cadbury Schweppes	6.6%	9.6%	10.0%
Mars	9.6%	9.6%	9.2%
Nestle	7.7%	7.7%	7.8%
Hershey	6.1%	6.1%	5.8%
Wrigley	4.6%	4.6%	4.9%
Kraft	4.8%	4.8%	4.9%
Source: Euromonitor 2004

Now that we are number one in global confectionery, our aim is to increase the gap between ourselves and our competitors. We believe we can do this because no other company has the same breadth and strength of product participation and geographic footprint. We compete strongly across all three confectionery categories of chocolate, sugar and gum and are number one or number two in around half of the world's top 50 confectionery markets. Our overall leadership in confectionery is underpinned by our number one position in sugar, our number two position in gum and our number four position in chocolate.

Integrating Adams, the largest acquisition the Group has ever made, was one of our two confectionery priorities in 2004. Following the successful business transition from Pfizer's shared services in the US in late 2004 and Canada in early 2005, the main integration is now complete. The business is now fully integrated at the commercial, supply chain and back office levels. At the time of the acquisition, we said that through the combination of an improvement in the performance of the base business and cost and revenue synergies, the returns from the Adams business would cover its cost of capital by 2006. Nearly three years on, Adams continues to exceed our expectations. The top line is ahead of the acquisition case, margins are significantly improved and we exceeded our cost of capital in 2005, one year ahead of schedule.

With the Adams integration successfully achieved, the focus of our activities in 2005 has moved to growth, with our priorities being to invest, innovate and execute and to continue to drive Smart Variety. The Smart Variety growth initiative recognises that our business model is based on our diverse range of strong local and regional brands. Smart Variety is a commercial discipline which provides us with the decision rules and processes to leverage the combination of our broad product range, geographic reach, routes to market and manufacturing capabilities across these brands.

Our strong presence in all three confectionery categories combined with our focus on executing our priorities helped drive revenue growth in confectionery in 2005 of 6%, with our business in emerging markets growing at 12%.

Innovation on our core brands played a key role in driving growth. We also saw strong growth in each individual category. In the UK, this growth was particularly creditable given the disruptive effect of the implementation of our new IT system.

Core brand sales growth in 2005

Trident	+21%
Halls	+9%
Cadbury Dairy Milk	+7%
Dentyne	+5%

In sugar confectionery, our Halls brand grew sales 9% in 2005, benefiting from growth in the EMEA region where we continue to broaden its distribution by using our existing route to market. We also continued to reinvigorate Hall's performance in its core North American markets and drive growth in developing markets.

In the gum category, our Trident, Dentyne and Hollywood brands had another strong year. Again, innovation was the key and included: in packaging, innovative resealable packs for Trident and Dentyne; new flavours such as Trident Tropical Twist and, in centre-filled gum, peppermint with vanilla, and strawberry with lime; and new formats, including centre-filled gum and a soft-slab variant to our Dentyne Ice range. The Trident brand grew 21%. We also launched Dentyne into the Malaysian market, where we achieved a 17% market share. In addition, the reformulation of our Dirol and Stimorol brands helped drive sales growth of over 30% in Russia.

In chocolate, we continue to drive growth through the success of our Cadbury Dairy Milk brand. Our re-launch of this 100 year old brand has been at the heart of the reinvigoration of our core confectionery business over the last two years. We've created a chocolate masterbrand which leverages Cadbury's unique chocolate heritage and ownership of moulded chocolate in the UK and Commonwealth markets. This has helped redefine the market and bring the battle for consumers onto the ground we invented and where we are the strongest.

Cadbury Dairy Milk sales were 7% ahead in 2005, building on the growth in 2003 and 2004 as we successfully rolled out the masterbranding concept into two new markets, Canada and South Africa, and extended product ranges in existing markets of Australia, the UK and Ireland. In 2006, the transfer of technology from Australia to the UK will enable us to add filled moulded products to the Cadbury Dairy Milk range, including a Creme Egg variant.

Growth in chocolate has also benefited from sales of premium chocolate products in the UK. We have used innovation to add premium products to the Cadbury brand, through products such as: Cadbury Delight, a premium Easter Egg; Snaps, our wafer chocolate sharing product; and luxury versions of Roses and Flake. We also bought out the majority share in Green & Black's, which performed strongly with sales up nearly 50% year-on-year.

We are supporting our confectionery innovation and Smart Variety programmes with significant investment in new Science & Technology and manufacturing facilities. In the last quarter of 2005, we opened our global gum centre of excellence in the US at Hanover Park, New Jersey at a cost of $40 million; announced investments totalling £100 million in a new gum plant in Poland and an expansion of our existing gum facility in Puebla, Mexico; and began investments in a new Bournvita plant at Badi, India and a £40 million expansion of chocolate capacity at Bournville, UK.