our financial scorecard
Our focus on strong growth and higher margins combines with disciplined management of our capital. We aim to improve the returns from the capital invested in our business while at the same time ensuring that we invest appropriately in the business for the longer-term.
- Organic revenue growth of 4% - 6% every year;
- Total confectionery share gain;
- Mid-teens trading margins by 2011;
- Strong dividend growth;
- An efficient balance sheet; and
- Growth in Return on Invested Capital (ROIC).
Our new management incentives for 2008–2011 are closely aligned with the achievement of the financial performance scorecard. Our annual incentive plans require a balanced delivery of top-line growth and margins, and the Long Term Incentive Plan requires a balanced delivery of earnings growth and improvement in ROIC. Further details of our incentive programmes are set out in our 2008 Annual Report.
Organic Revenue Growth of 4% - 6% every year
Between 2004 and 2008, our organic revenue growth averaged 6% a year, a significant increase on the previous four years, when Cadbury’s confectionery growth averaged less than 3%, and the Adams business, which we brought in 2003, barely grew. We have significantly accelerated our growth since 2004 by unlocking the potential of the Adams business and by substantially increasing our investment in innovation, marketing and sales.
Our revenue ambition of between 4% and 6% annual organic growth for 2008 to 2011 is underpinned by:
- The strength of our brands and market positions;
- The increased investment we have made in innovation, marketing and sales;
- Our greater exposure to faster growing categories (such as gum) and markets (such as emerging markets); and
- Healthy demand for confectionery: the market has grown consistently at around 5% every year for the last four years.
Our revenue ambition allows for some rationalisation of our portfolio as we redouble our efforts to grow more profitably.
Total confectionery share gain
In 2007 we were the number one confectionery company globally with of 10.5%, an increase of 30 basis points on 2006. Since we bought the Adams business our share has increased by an average of 30 basis points a year. We believe that our focus on growth, including the benefits of high-growth categories such as gum and high-growth emerging markets such as India, will enable us to continue to grow our market share.
Mid-teens trading margin by 2011
In 2007 our underlying trading margins were 10.1%. This compares with an industry average which we believe is nearer 15%. To help achieve world-class performance, a cost reduction and efficiency programme is being implemented. For details of this programme, see 'relentless focus on cost and efficiency' section below.
Strong dividend growth
As a focused confectionery company, we have committed to grow our dividends strongly, consistent with a medium term target dividend payout ratio of 40% - 50% of underlying earnings.
In 2008, our pro-forma dividend was 16.4p, equivalent to a payout ratio of around 55% of underlying earnings.
An efficient balance sheet
On demerger we had a net debt to EBITDA ratio of 2.4 times and a credit rating of BBB (S&P)/ Baa2 (Moody’s). Over time, it is our intention to target a credit rating of BBB+, which is consistent with a capital structure which gives us sufficient flexibility to invest in the business and make modest debt funded bolt-on acquisitions.
Growth in return on invested capital
We are committed to growing our return on invested capital (ROIC). This will principally be driven by improvement in our operating performance.
We expect to continue our disciplined approach to working capital management, and to continue to recycle capital from low-growth and non-core businesses into organic investment and bolt-on acquisitions.
We define our ROIC as NOPAT/Invested Capital where:
NOPAT = Underlying Operating Profit after Business Improvement Costs and Profit from Associates less Tax at underlying tax rate
Invested Capital = Average Operating Assets and Integible Assets (on a monthly basis) plus Average Cumulative Exceptional Restructuring changed since 1 January 2007 plus Average Deferred Tax (on a monthly basis).
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