Strategy Review

Goal 4: Capabilities best in class

2005 Priorities

• Roll-out Building Commercial Capabilities
• Refine Supply Chain disciplines

Our fourth goal reflects the need to have the best people, systems and structure to enable us to deliver our commercial agenda.

Since acquiring Adams in 2003, we have transformed our organisation. We have integrated our businesses more thoroughly and restructured into operating regions and global functions. We have introduced enhanced common global processes and systems, improved our efficiency, and upgraded the quality of our team through internal training and external recruitment. This transformation is delivering benefits in terms of our increased market scale, higher investment and focus on our core brands.

We are continuing to enhance our team's capability, and we have brought in significant new expertise and experience into the business from outside. 25% of the top 160 managers and five of the twelve members of the Chief Executive's Committee (CEC) are new to the business since 2003. This year, CEC members Jim Chambers, President of Americas Confectionery, joined us from Rémy Amérique where he was President, and Steve Driver, most recently Head of Global Supply for the Quest division of ICI, was appointed President of Global Supply Chain. We also promoted excellence internally with the appointment of Hank Udow as Chief Legal Officer and Hester Blanks as Group Secretary.

In 2004, our two priorities in support of this goal were to ratchet up innovation and to hone our people and systems capabilities. In 2005, our focus moved to rolling out our Group-wide Building Commercial Capabilities (BCC) programme and refining our supply chain disciplines.

In early July, our new UK IT system went live. It is designed to lead to substantial efficiencies in our UK business, across the supply chain, including working capital and to improved customer service.

Innovation continued to be a key driver of our growth in 2005. In 2003, innovation accounted for around 6% of total sales. In 2004 it grew to 9% and in 2005 it has increased further to 10%. In 2004, we introduced a rigorous innovation management process, which enabled us to take a common approach to innovation decision making based on strict financial and commercial criteria. Building on this process, in 2005, we put in place a new software tool which facilitates the sharing and rollout of new innovations across the business.

As a result, we now have a multi-year innovation pipeline which is being systematically filled through our investment in consumer insights, and in science and technology expertise. Investments in Science & Technology include developing our beverages research centre in the US; opening our Science & Technology centre in Singapore for the Asia Pacific region; and our Hanover Park, New Jersey investment, highlighted in the case study.

Our BCC programme gives us standardised tools and processes and a single common language for launching and developing our products. We are training both sales and marketing colleagues in BCC, which is fostering a more fully integrated approach between these two disciplines. They are now working closer together on product launches and promotional activity. As a result, we have been able to evaluate and co-ordinate where best to direct promotional spend; either in trade promotion or in advertising. Overall, we believe BCC will allow us to deliver more predictable and disciplined revenue growth, and leverage the advantages of sharing learnings between markets.

BCC takes as its foundation our global consumer segmentation study which has now covered 38 markets. Based on its findings, BCC provides a framework for determining where we should best participate, how we can win profitably in these markets, and how we can best influence consumer behaviour through best-in-class advertising, store merchandising and execution, and product quality. In 2005, over 1,000 sales and marketing leaders were trained in BCC.

Our second priority in 2005 was to refine our supply chain disciplines. In 2005, we made further improvements in areas such as production planning, quality control and safety and environmental standards in order to enhance our efficiency, reduce risk and improve our working capital management.

In sales and operations planning, we concentrated on embedding the five step planning process we launched throughout the business in 2004. The process is now used in 90% of the business, helping us in reducing service level interruptions and inventory levels, and enhancing the efficiency of product launches.

Consistently good product quality is critical to our business. In 2005, we upgraded our processes to achieve a Group-wide standardised approach to quality. Over 90% of our manufacturing sites are now using a hazard analysis process to identify andaddress key areas of risk, and we also significantly improved our ability to systematically track product quality. In 2005, as part of the Fuel for Growth programme, we achieved cost savings in key areas of our supply chain including procurement savings and factory reconfiguration and efficiency programmes. We also formed a logistics and customer operations leadership team to reduce costs in distribution and warehousing.