Vision and Strategy

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).

We have characterised our growth priority with the words “fewer, faster, bigger, better”. This means that we are making clearer choices about where and how we focus our effort for the biggest impact. Our aim is to leverage our global scale while at the same time reducing complexity and costs. So that we can do this, we have radically changed our organisation and the way we manage our business.

organisational focus

We have moved from an organisational structure where our brands and categories were managed on a market by market basis to one where we manage our three categories – chocolate, candy and gum - on a global basis through our global commercial function. A small number of our focus brands – Cadbury, Trident and Halls - are also managed on a global basis.

focus markets

Within each of our global categories, we are focusing our efforts on 12 markets: those markets which are the biggest today or the biggest tomorrow.

USA, Great Britain, Mexico, Brazil, South Africa, Turkey, Russia, France, Japan, India, Australia and China

Taken together, they represent 60% of the global confectionery market today and over 60% of expected category growth over the next five years.

focus brands

We are increasing focus on 13 of our key brands which generate around half of our total revenues and have advantaged positions. They have grown at an average rate of nearly 10% over the last two years and have significantly better structural economics than the rest of our portfolio, generating gross margins which are well above our group average.

However, our strength does lie in the greater variety of our offer and we will reduce our portfolio complexity while continuing to leverage the advantage of variety.

Focus customers

We are focusing on 7 global customers and 3 trade channels.

These 7 global customers accounted for over 10% of our revenues in 2007 and and have grown at a rate of 8% in 2008.

Our three focus trade channels are:

• Impulse in developed markets
• Traditional trade in emerging markets
• International travel retail

We recognise that we can be much more profitable by simplifying the way we do things across all aspects of our business.

Because of the way we organised ourselves in the past and the number of acquisitions we made, our business is more complex than it needs to be. As a result, our total cost base is higher and our margins are currently below our peer group average.

Following detailed reviews of our sales, general and administration (SG&A) costs and global manufacturing footprint, we believe we can drive a step-change in margins and returns by re-configuring our confectionery business model.

Our goal of increasing our underlying operating margins from around 10% in 2007 to mid-teens by end of 2011, has three main elements:

• A major group-wide cost and efficiency programme across all aspects of our business - in sales and administration, in the supply chain, in the regions and at the group centre. We are aiming to reduce the complexity in our business and minimise duplicated activities;
• Improving the performance in three key underperforming emerging markets – Russia, China and Nigeria; and
• Focusing relentlessly on profitable growth and where necessary, rationalising our portfolio.

Examples of the ways in which we are simplifying our business to reduce costs include:

• Combining local market and regional head offices, including in the UK where we have recently co-located our central head office team with the BIMA management team in a single office;
• Combining or clustering a number of markets into a single commercial organisation with greater scale and lower overall costs such as Canada and the USA;
• Outsourcing certain financing, accounting, IT and human resource processes to specialist third party operators; and
• Reconfiguring our manufacturing network, so that more of our production is focused in a fewer number of large scale plants. This will allow us to reduce costs and invest in new state of the art factories to support our growth agenda.

We continue to build leading organisational capabilities required to support our growth and efficiency agendas. We have identified five key capability priorities.

Embed building commercial capabilities

We have initiatives in place, prioritised in each region and for each category, to realise the full potential of our commercial operations. These eight initiatives range from helping our leaders to lead change, embedding working capital disciplines to addressing important information gaps.

Invest in science, technology and innovation

We continue to invest in Science, Technology and Innovation. By implementing superior tools and techniques, we have made significant progress in re-building our technical competence.

Deliver preferred products at competitive cost

Our priorities focus on delivering preferred products at competitive cost. Our new supply chain vision is to be an effective partner for profitable growth, which we will achieve by being focused, flexible and fast.

Streamline processes

Information Technology and Business Services are two key enablers in driving efficiency and effectiveness, and delivering ‘fewer, faster, bigger, better’. While we reduce the size of the IT organisation by one third through consolidation, efficiencies and outsourcing, our IT transformation programme will create an IT function that is an integrated part of the business.

Improve talent, diversity and inclusiveness

Improving talent, diversity and inclusiveness is a core part of our capability priorities. We have positioned our diversity and inclusiveness agenda as integral to our strategy to enhance management talent.

We’ve always appreciated that doing good is good for business: being responsible and being commercial go hand in hand. Our founders believed in it and it is still at the heart of the way we work today.

We have identified six commitments to ensure we grow in a responsible and sustainable way for the long-term:

Promote responsible consumption of our products through thoughtful marketing, product innovation and better nutritional labelling

Ensure ethical and sustainable sourcing of raw materials and other supplies, including the Cadbury Cocoa Partnership

Prioritise quality and safety

Reduce carbon, packaging and water use, as part of our Purple Goes Green campaign

Nurture and reward colleagues and embrace diversity

Invest in communities in which we operate

Further information can be found in the our responsibilities section of our website