20-F 1 u55102e20vf.htm FORM 20-F e20vf
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 20-F
     
o   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED 31 DECEMBER 2007
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
OR
     
o   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
Commission file number 2-90552
CADBURY SCHWEPPES
Public Limited Company
(Exact name of Registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organization)
25 Berkeley Square, London, England W1J 6HB
(Address of principal executive offices)
Henry Udow
Chief Legal Officer & Group Secretary
Cadbury Schweppes plc
25 Berkeley Square, London, England W1J 6HB
01144 20 7409 1313
01144 20 7830 5200

(Name, address, telephone and facsimile number of Company Contact Person)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
     
Title of each class   Name of each exchange on which registered
     
Ordinary Shares of 12.5p each   New York Stock Exchange
American Depositary Shares, each representing four   New York Stock Exchange
Ordinary Shares, 12.5p per Ordinary Share    
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of Class)
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION
PURSUANT TO SECTION 15(d) OF THE ACT:
None
(Title of Class)
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of 31 December 2007 was: 2,109,108,434 Ordinary Shares of 12.5p each
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
þ Yes o No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o Yes þ No
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
þ Large accelerated filer      o Accelerated filer      o Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
         
o US GAAP  
þ International Financial Reporting Standards as issued by the International Accounting Standards Board
  o Other
If “Other” has been checked in response to the previous question, Indicate by check mark which financial statement item the Registrant has elected to follow:
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
 


 

TABLE OF CONTENTS
                 
INTRODUCTION           Page
               
  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS     1  
  OFFER STATISTICS AND EXPECTED TIMETABLE     1  
  KEY INFORMATION     1  
  INFORMATION ON THE COMPANY     8  
  UNRESOLVED STAFF COMMENTS     20  
  OPERATING AND FINANCIAL REVIEW AND PROSPECTS     21  
  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES     49  
  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     71  
  FINANCIAL INFORMATION     73  
  THE OFFER AND LISTING     73  
  ADDITIONAL INFORMATION     73  
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK     80  
  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES     80  
               
  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES     81  
  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS     81  
  CONTROLS AND PROCEDURES     81  
  AUDIT COMMITTEE FINANCIAL EXPERT     83  
  CODE OF ETHICS     83  
  PRINCIPAL ACCOUNTANT FEES AND SERVICES     83  
  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES     83  
  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS     83  
             
  FINANCIAL STATEMENTS     84  
  FINANCIAL STATEMENTS     84  
  EXHIBITS         84  
 Exhibit 4.3
 Exhibit 4.5
 Exhibit 8
 Exhibit 12.1
 Exhibit 12.2
 Exhibit 13.1
 Exhibit 13.2
 Exhibit 15

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INTRODUCTION
In this Annual Report on Form 20-F (the “Report”) references to the “Company” or the “Group” are references to Cadbury Schweppes public limited company, and its subsidiaries, except as the context otherwise requires.
Forward looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Report. Forward looking statements are based on management’s current views and assumptions, and involve risks and uncertainties that could significantly affect expected results. For example, results may be affected by external factors such as: international economic and political conditions; changes in laws and regulations, including changes in accounting standards; fluctuations in the cost of funding retirement benefits; distributor and licensee relationships and actions; effectiveness of spending and marketing programmes; and unusual weather patterns.
This Report has been prepared from the Cadbury Schweppes Report & Accounts 2007, which has been distributed to shareholders. The relevant sections of the Report & Accounts 2007 that are responsive to the requirements of Form 20-F have been excerpted and repeated herein. In addition, certain additional information required by Form 20-F that is not included in the Report & Accounts 2007 has been included herein. The Report & Accounts 2007 has been furnished to the Securities and Exchange Commission, or “SEC”, on Form 6-K dated 19 March 2008.
PART I
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3: KEY INFORMATION
Selected Financial Data
The tables below show selected financial data derived from our consolidated financial statements included in “Item 18. Financial Statements” in this Report. In 2005, the Company adopted International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union and in accordance with the instructions to Form 20-F has prepared comparative financial information for 2004 on a consistent basis. As a result, selected IFRS financial data is only included in Item 3 for 2004 to 2007.

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IFRS Financial Record
                                 
    2007     2006     2005     2004  
Income Statement   £m     £m     £m     £m  
 
Continuing Operations
                               
Revenue
    7,971       7,427       6,432       6,012  
Trading costs
    (6,945 )     (6,425 )     (5,391 )     (5,072 )
Restructuring costs
    (200 )     (133 )     (71 )     (139 )
Non-trading items
    (38 )     40       25       18  
         
Profit from operations
    788       909       995       819  
 
                               
Share of result in associates
    8       (16 )     28       22  
         
Profit before financing and taxation
    796       893       1,023       841  
 
                               
Investment revenue
    55       48       42       48  
Finance costs
    (181 )     (203 )     (230 )     (253 )
         
Profit before taxation
    670       738       835       636  
 
                               
Taxation
    (263 )     (215 )     (135 )     (144 )
         
Profit for the period from continuing operations
    407       523       700       492  
 
                               
Discontinued operations1
                               
Profit for the period from discontinued operations
          642       76       55  
 
Profit for the period
    407       1,165       776       547  
         
Attributable to:
                               
Equity holders of the parent
    405       1,169       765       525  
Minority interests
    2       (4 )     11       22  
         
 
    407       1,165       776       547  
 
Earnings per share
                               
From continuing and discontinued operations
                               
Basic
    19.4p       56.4p       37.3p       25.9p  
Diluted
    19.2p       55.9p       36.9p       25.7p  
 
                               
From continuing operations
                               
Basic
    19.4p       25.4p       33.6p       23.2p  
Diluted
    19.2p       25.2p       33.2p       23.0p  
 
                               
Earnings per ADR2
                               
From continuing and discontinued operations
                               
Basic
    77.6p        225.6p        149.2p        103.6p   
Diluted
    76.8p        223.6p        147.6p        102.8p   
 
                               
From continuing operations
                               
Basic
    77.6p        101.6p        134.4p        92.8p   
Diluted
    76.8p        100.8p        132.8p        92.0p   
 
1     In 2005, the Group’s beverage business in Europe was classified as discontinued operations. In 2006, we completed the disposal of our South African beverage business. As this disposal was part of our strategic decision to exit beverages outside the Americas and Australia, it has also been classified as discontinued operations. This has required the re-presentation of the 2005 and 2004 financial statements on a comparable basis. On 10 October 2007, the Group announced that it intended to demerge Americas Beverages. At 31 December 2007, Americas Beverages does not meet the requirements to be classified as an asset held for sale in accordance with IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ and as such is not presented as a discontinued operation.
     
2     Each ADR represents four ordinary shares.

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    2007     2006     2005     2004  
    £m     £m     £m     £m  
 
Cash Flow Statement
                               
 
Net cash from operating activities
    812       620       891       745  
Net cash (used in)/generated from investing activities
    (567 )     522       (308 )     (195 )
Net cash generated from/(used in) financing activities
    14       (1,212 )     (592 )     (539 )
         
Net increase/(decrease) in cash and cash equivalents
    259       (70 )     (9 )     11  
Opening net cash and cash equivalents
    186       276       284       275  
Effect of foreign exchange rates
    4       (20 )     4       (2 )
Less: Net cash and cash equivalents included in discontinued operations
                (3 )      
Closing net cash and cash equivalents
    449       186       276       284  
         
Balance Sheet
                               
 
Assets employed
                               
Intangible assets and goodwill
    6,332       5,903       5,648       5,757  
Property, plant and equipment
    1,904       1,664       1,446       1,464  
Retirement benefit assets
    223                    
Assets held for sale
    71       22       945       5  
Other non-current assets
    208       248       567       419  
Inventory and trade and other receivables
    2,018       1,914       1,893       1,859  
Other current assets
    87       87       114       30  
Cash and short-term investments
    495       395       379       346  
         
Total Assets
    11,338       10,233       10,992       9,880  
Total current liabilities, excluding borrowings and provisions
    (1,920 )     (1,862 )     (1,841 )     (1,696 )
Liabilities directly associated with assets classified as held for sale
    (18 )     (9 )     (291 )      
Total non-current liabilities, excluding borrowings, provisions and retirement benefit obligations
    (1,198 )     (1,085 )     (1,124 )     (1,106 )
Borrowings
    (3,682 )     (3,249 )     (4,216 )     (4,130 )
Obligations under finance leases
    (32 )     (55 )     (63 )     (86 )
Provisions
    (172 )     (73 )     (53 )     (77 )
Retirement benefit obligations
    (143 )     (204 )     (369 )     (485 )
         
Net Assets
    4,173       3,696       3,035       2,300  
         
 
                               
Equity
                               
Equity attributable to equity holders to the parent
    4,162       3,688       3,008       2,071  
Minority interest
    11       8       27       229  
         
 
    4,173       3,696       3,035       2,300  
 

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Dividends
The interim dividend for 2007 of 5.0 pence per ordinary share was paid on 19 October 2007. The interim dividend for American Depository Receipts (“ADRs”) of $0.4062 per ADR was paid on 19 October 2007. The proposed final dividend for 2007 of 10.5 pence per ordinary share was announced by the Directors on 19 February 2008 and, subject to approval at the Annual General Meeting, will be paid on 16 May 2008 to those shareowners and ADR holders who are on the register at the close of business on 1 May 2008.
The Company has paid cash dividends on its ordinary shares in respect of every financial year since the merger of Cadbury Group Limited with Schweppes Limited in 1969. Dividends are paid to owners of ordinary shares on dates which are determined in accordance with the guidelines of the UK Listing Authority. A final dividend is normally recommended by the Board of Directors following the end of the financial year to which it relates and is paid in the following May, subject to shareowners’ approval at the Company’s Annual General Meeting. An interim dividend is normally declared by the Board of Directors following the end of the first half year to which it relates.
The dividends for holders of ADRs are paid to ADR holders on the same date as to ordinary shareholders, giving ADR holders equal treatment to ordinary Shareowners. The dividend conversion rate was set as at the rate of the US dollar against pound sterling on 18 February 2008, being the last trading day before the preliminary results announcement.
Future dividends to be paid by the Company will be dependent upon the Company’s earnings, financial condition and other factors, including the amount of dividends paid to it by its subsidiaries. There is no UK governmental restriction on dividend payments to foreign shareholders which is applicable to the Company.
The tables below detail the amounts of interim, final and total dividends declared in respect of each financial year indicated, translated into US dollars per ADR (each representing four ordinary shares) at the Noon Buying Rate on each of the respective payment dates or the latest practical date for the proposed 2007 final dividend.
Dividend Rates per Ordinary Share
                                                 
Financial Year   2007     2006     2005     2004     2003      
 
Pence per ordinary share
                                               
Interim
    5.00       4.10       4.00       3.80       3.65        
Final
    10.50 (a)     9.90       9.00       8.70       8.35        
             
Total
    15.50       14.00       13.00       12.50       12.00        
             
(a)   To be paid on 16 May, 2008 to ordinary shareowners (assuming shareowner approval)
Dividend Rates per ADR
                                                 
Financial Year   2007     2006     2005     2004     2003      
             
£ per ADR
                                               
Interim
    0.20       0.16       0.16       0.15       0.15        
Final
    0.42       0.40       0.36       0.35       0.33        
             
Total
    0.62       0.56       0.52       0.50       0.48        
             
US Dollars per ADR
                                               
Interim
    0.41       0.30       0.28       0.27       0.24        
Final
    0.86       0.77       0.63       0.63       0.61        
           
Total
    1.25       1.07       0.91       0.90       0.85        
           
(a)   To be paid on 16 May, 2008 to ADR holders (assuming shareowner approval, conversion rate as at 10 March 2008: £1.00=$2.01)
Exchange Rates
The table below details information regarding the U.S. dollar and pound sterling exchange rates for the periods presented.
                         
    High     Low     Average (b)  
Financial Year (a)   US$     US$          
 
2003
                1.64  
2004
                1.84  
2005
                1.81  
2006
                1.84  
2007 September
    2.05       1.99       2.02  
October
    2.08       2.03       2.05  
November
    2.11       2.05       2.07  
December
    2.07       1.98       2.02  
Full year
                2.00  
2008 January
    1.99       1.94       1.97  
February
    1.99       1.94       1.96  
March
    2.03       1.98       2.00  
      =
(a)   The Company’s financial year ends on 31 December.
 
(b)   Calculated by using the average of the exchange rates on the last day of each month during the period.
On 31 December 2007, the last dealing day of the Company’s financial year, the noon buying rate for pound sterling was £1.00 = $2.00. Fluctuations in the exchange rate between pound sterling and the US dollar will affect the US dollar equivalent of the pound sterling prices of the Company’s ordinary shares listed on the London Stock Exchange and, as a result, are likely to affect the market price of the ADRs in the US. Such fluctuations will also affect the US dollar amounts received by holders of ADRs on conversion by the Depository of cash dividends paid in pounds sterling on the ordinary shares represented by the ADRs.

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Risk Factors
Our business, financial condition, results of operations or share price could be materially adversely affected by any or all of the following risks, or by others that we cannot identify.
Risks related to the Nature of our Business
ACTIONS OF GOVERNMENT ENTITIES OR THE MEDIA IN COUNTRIES WHERE WE OPERATE MAY NEGATIVELY IMPACT OUR OPERATIONS OR INCREASE OUR COST OF DOING BUSINESS
The Group is at risk from significant and rapid change in the legal systems, regulatory controls, and custom and practices in the countries in which it operates. These affect a wide range of areas including the composition, production, packaging, labelling, distribution and sale of the Group’s products; the Group’s property rights; its ability to transfer funds and assets within the Group or externally; employment practices; data protection; environment, health and safety issues; and accounting, taxation and stock exchange regulation and involve actions such as product recalls, seizure of products and other sanctions. Accordingly, changes to, or violation of, these systems, controls or practices could increase costs and have material and adverse impacts on the reputation, performance and financial condition of the Group.
Political developments and changes in society, including increased scrutiny of the Group, its businesses or its industry, for example by non-governmental organisations or the media, may result in, or increase the rate of, material legal and regulatory change, and changes to custom and practices.
The Group may also be subject to regulation designed to address concerns about dietary trends. This could include the introduction of additional labelling requirements, and levying additional taxes on, or restricting the production or advertising of, certain product types, which could increase the Group’s costs or make it harder for the Group to market its products, adversely affecting its performance.

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A FAILURE OF OUR CONTROLS IN ONE OR MORE COUNTRIES WHERE WE OPERATE COULD ADVERSELY IMPACT OUR RESULTS
The Group is exposed to control and other risks inherent in a business which operates in many countries. A failure of control in one or more countries may materially adversely affect the performance or financial condition of the Group as a whole. Approximately one-third of the Group’s confectionery revenues are generated in emerging markets, which have less developed political, legal and regulatory systems which are at higher risk of failure than those of developed markets. Any failure may have a materially adverse impact on the Group’s performance or financial condition.
DISRUPTION IN OUR MANUFACTURING AND DISTRIBUTION SYSTEMS COULD MATERIALLY ADVERSELY AFFECT OUR ABILITY TO MAKE AND SELL PRODUCTS AND HAVE A NEGATIVE IMPACT ON OUR REPUTATION, PERFORMANCE OR FINANCIAL CONDITION
The Group is at risk from disruption of a number of key manufacturing and distribution assets and systems on which it increasingly depends. The functioning of the Group’s manufacturing and distribution assets and systems could be disrupted for reasons either within or beyond the Group’s control, including: extremes of weather or longer-term climatic changes; accidental damage; disruption to the supply of material or services; product quality and safety issues; systems failure; workforce actions; or environmental contamination. While the Group has an incident management system in place, there is a risk that these plans may prove inadequate and that any disruption may materially adversely affect the Group’s ability to make and sell products and therefore materially adversely affect its reputation, performance or financial condition.
INCREASED COMPETITION OR CONCENTRATION OF OUR CUSTOMER BASE COULD LEAD TO INCREASE PRICING PRESSURE AND DECLINING MARGINS
Increased competition in the markets in which it operates may materially adversely impact the Group’s performance and financial condition. The confectionery industry is highly competitive. The Group competes with other multinational corporations which also have significant financial resources. The Group may be unable to compete effectively if its competitors’ resources are applied to change areas of focus, enter new markets, reduce prices, or to increase investments in marketing or the development and launch of new products. The Group is also at risk from the trend towards greater concentration of its customer base due to consolidation of the retail trade which may result in increased pricing pressure from customers and adversely impact the Group’s sales and margins.
SHIFTS IN CONSUMER DEMAND FOR OUR PRODUCTS COULD ADVERSELY AFFECT OUR SALES
Consumer demand for the Group’s products may be affected by factors including changes to consumer preferences, unseasonable or unusual weather, or longer-term climatic changes. The Group has made substantial investments in understanding consumer preferences and in its ability to respond to consumer needs through innovation, and also has products appealing to a wide range of consumers. However, it may be unable to respond successfully or at reasonable cost to rapid changes in demand or consumer preferences, which may adversely affect its performance.
THE KEY RAW MATERIALS THAT WE USE IN OUR BUSINESS COULD BE SUBJECT TO SIGNIFICANT VOLATILITY IN PRICE AND SUPPLY, AND THIS COULD INCREASE OUR COSTS.
The Group depends upon the availability, quality and cost of raw materials from around the world, which exposes it to price, quality and supply fluctuations, including those occurring because of the impact of disease or climate on harvests. Key raw materials include cocoa, milk, sweeteners, packaging materials and energy, some of which are available only from a limited number of suppliers. Although the Group will take measures to protect against the short-term impact of these fluctuations and of the concentration of supply, there is no guarantee that these will be effective. A failure to recover higher costs or shortfalls in availability or quality could materially adversely impact the Group’s performance.
BECAUSE OUR RETIREMENT BENEFIT PLANS ARE FUNDED THROUGH INVESTMENTS IN VOLATILE CAPITAL MARKETS, WE COULD EXPERIENCE A SHORTFALL IN FUNDING OF RETIREMENT BENEFITS, WHICH WOULD SIGNIFICANTLY ADVERSELY AFECT OUR FINANCIAL POSITION
The Group is at risk from potential shortfalls in the funding of its various retirement and healthcare benefit schemes. The liabilities of these schemes reflect the Group’s latest estimate of life expectancy, inflation, discount rates and salary growth which may change. These schemes are generally funded externally under trust through investments in equities, bonds and other external assets, the values of which are dependent on, among other things, the performance of equity and debt markets, which can be volatile. Changes in the value of the assets or liabilities of these schemes and therefore their funding status may require additional funding from the employing entities and may adversely impact the Group’s financial condition.
Risks related to our structure and processes
FAILURE OF OUR INFORMATION TECHNOLOGY INFRASTRUCTURE COULD ADVERSELY AFFECT OUR DAY-TO-DAY BUSINESS AND DECISION MAKING PROCESSES AND HAVE AN ADVERSE AFFECT ON OUR PERFORMANCE
The Group depends on accurate, timely information and numerical data from key software applications to aid day-to-day business and decision-making. Any disruption caused by failings in these systems, of underlying equipment or of communication networks could delay or otherwise impact the Group’s day-to-day business and decision-making and have materially adverse effects on the Group’s performance.
MANY COMPONENTS OF OUR BUSINESS ARE DEPENDENT UPON THE PERFORMANCE OF OTHER COMPONENTS AND, ACCORDINGLY, COULD BE ADVERSELY AFFECTED BY ANY FAILURE OR OUR UNDERPERFORMANCE
The Group’s operations in individual countries are increasingly dependent for the proper functioning of their business on other parts of the Group in terms of raw material and product supply, new products and sales and marketing programme development, technology, funding and support services. Any underperformance or failure to control the Group’s operations in one country properly could therefore impact the Group’s businesses in a number of other countries and materially adversely impact the performance or financial condition of other business units or the Group as a whole.

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OUR PRODUCTS COULD BECOME CONTAMINATED, WHICH COULD BE EXPENSIVE TO REMEDY, CAUSE DELAYS IN MANUFACTURING AND ADVERSELY AFFECT OUR REPUTATION AND FINANCIAL CONDITION
Despite safety measures adopted by the Group, its products could become contaminated or not meet the required quality or safety standards. The Group uses many ingredients, and there is a risk of either accidental or malicious contamination. Any contamination or failure to meet quality and safety standards may be costly and impact the Group’s reputation and performance.
WE DEPEND ON THE PERFORMANCE OF OUR EXECUTIVE OFFICERS AND EMPLOYEES AND WOULD BE ADVERSELY AFFECTED BY AN INABILITY TO CONTINUE TO ATTRACT, DEVELOP AND RETAIN QUALIFIED INDIVIDUALS
The Group depends on the continued contributions of its executive officers and employees, both individually and as a group. While the Group reviews its people policies on a regular basis and invests significant resources in training and development and recognising and encouraging individuals with high potential, there can be no guarantee that it will be able to attract, develop and retain these individuals at an appropriate cost and ensure that the capabilities of the Group’s employees meets its business needs. Any failure to do so may impact the Group’s performance.
ACTIONS BY THIRD PARTY LICENSEES OF OUR BRAND AND PRODUCT RIGHTS COULD ADVERSELY AFFECT OUR REPUTATION
The Group licences to third parties certain brand and product rights in specific geographies. While such licences are carefully controlled, inappropriate action or an incident at a licensee partner could occur and impact the reputation of the Group’s brands or the Group as a whole.
THE FAILURE OF THIRD PARTIES TO WHOM WE HAVE OUTSOURCED BUSINESS FUNCTIONS COULD ADVERSELY AFFECT OUR REPUTATION AND FINANCIAL CONDITION
The Group is increasing its use of outsourcing arrangements with third parties, notably in information technology, manufacturing, finance and human resources operations. While the Group has benefited from the expertise of these third parties, it is at risk from failures by these third parties to deliver on their contractual commitments, which may adversely impact its reputation and performance, and increase its costs.
WE DEPEND ON OUR SUBSTANTIAL INTELLECTUAL PROPERTY RIGHTS AND A CLAIM OF INFRINGEMENT COULD REQUIRE US TO EXPEND SIGNIFICANT RESOURCES AND, IF SUCCESSFUL, COULD ADVERSELY AFFECT OUR BUSINESS
The Group has substantial intellectual property rights and interests which are important to the Group and may require significant resources to protect and defend. The Group may also infringe others’ intellectual property rights and interests and therefore be required to redesign or cease the development, manufacture, use and sale of its products so that they do not infringe others’ intellectual property rights. This may require significant resources or not be possible. The Group may also be required to obtain licences to infringed intellectual property, which may not be available on acceptable terms, or even at all. Intellectual property litigation by or against the Group could significantly disrupt the Group’s business, divert management’s attention, and consume financial resources, and therefore have a materially adverse impact on the reputation, performance and financial condition of the Group.
Risks related to the implementation of the Group’s strategy and its change and restructuring programmes.
WE CAN OFFER NO ASSURANCES REGARDING THE ULTIMATE EFFECT OF THE IMPLEMENTATION OF THE SEPARATION OF OUR AMERICAS BEVERAGES BUSINESS
The demerger of Americas Beverages may not complete on the anticipated timetable. Completion of the demerger is subject to the satisfaction (or waiver) of a number of conditions including, amongst others, the approval of the demerger by Cadbury Schweppes shareowners at shareowner meetings (i.e. general meeting and court meeting) and Court sanction. If the Cadbury Schweppes shareowners do not approve the Proposals at the shareowner meetings, Court sanction is not given or Americas Beverages is unable to raise sufficient finance to repay its debts to the continuing group, the demerger will not complete. If the demerger and the transactions connected with it (e.g. if it fails to repay debts post-demerger) does not occur in part or whole, then the Group may experience a delay in the execution of its strategic objectives, and may be unable to realise the benefits for shareowners that the Board believes will result from the demerger.
There can be no guarantee that the Group will realise any or all of the anticipated benefits of the demerger, either in a timely manner or at all. If that happens, and the Group incurs significant costs, it could have a material adverse impact on the results of the Group.
THERE CAN BE NO GUARANTEE THAT THE GROUP’S VISION INTO ACTION PLAN WILL DELIVER IMPROVEMENTS IN BUSINESS PERFORMANCE AND THE IMPLEMENTATION OF THE PLAN MAY DISRUPT THE GROUP’S BUSINESS.
On 19 June 2007, the Group announced a new strategy for Confectionery called Vision into Action, which includes a plan to improve its margin performance to achieve a mid-teens operating margin by 2011. This plan includes gross reductions of approximately 15%. in the number of factories, material changes to the Group’s supply chain configuration, and to the structure and operation of other Group Functions. These changes increase the risk of significant disruption to the Group’s business, which may occur, for example, through defective execution of the Vision into Action plan, unforeseen events, or workforce actions.
The Group expects to incur a restructuring charge of £450 million (of which around £50 million is non-cash) and invest £200 million of capital expenditure behind the ‘Vision into Action’ plan. There can be no guarantee, however, that this investment, or the Group’s other or subsequent investments, will deliver the anticipated improvements in business performance.
RISKS INHERENT IN THE ACQUISITION OR DISPOSAL OF BUSINESSES AND BRANDS MAY HAVE AN ADVERSE IMPACT ON THE GROUP’S BUSINESS OR FINANCIAL RESULTS
From time to time the Group may make acquisitions and disposals of businesses and brands. While these are carefully planned, the rationale for them may be based on incorrect assumptions or conclusions and they may not realise the anticipated benefits or there may be other unanticipated or unintended effects. Additionally, while the Group seeks protection, for example through warranties and indemnities in the case of acquisitions, significant liabilities may not be identified in due diligence or come to light after the expiry of warranty or indemnity periods. These factors may materially adversely impact the performance or financial condition of the Group.
WE ARE EXPOSED TO MARKET RISKS SUCH AS INTEREST RATE AND EXCHANGE RATE RISKS ARISING FROM OUR INTERNATIONAL BUSINESS
The main financial risks facing the Group are fluctuations in foreign currency, interest rate risk, availability of financing to meet the Group’s needs and default by counterparties. Any of these financial risks may materially adversely impact the performance or financial condition of the Group. A detailed discussion of the Group’s financial risks can be found in the Financial Review on pages 41 to 43.

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ITEM 4: INFORMATION ON THE COMPANY
The legal and commercial name of the Company is Cadbury Schweppes Public Limited Company. The Company was incorporated on 6 May 1897 and is registered under the laws of England and Wales as a public limited company. Its registered number is 52457. Its principal executive offices are located at 25 Berkeley Square, London, England W1J 6HB, (telephone +44 20 7409 1313). The legislation under which the Company operates is the Companies Act 1985, as amended (the “Companies Act”).
References to the Group, Cadbury Schweppes, Confectionery, and Americas Beverages throughout this document are defined as follows:
The Group and Cadbury Schweppes mean the current group which is the Confectionery and the Americas Beverages businesses.
Where we refer to Confectionery we mean the four Confectionery operating regions: Britain, Ireland, Middle East and Africa (BIMA); Europe; Americas Confectionery; Asia Pacific (an integrated confectionery and beverages business) and the Central functions, which collectively, will be the Cadbury plc group as it will exist following the demerger effective date. Where we refer to confectionery we mean the three confectionery categories: chocolate, gum and candy.
Americas Beverages is the non-alcoholic beverage business in the United States, Canada, and Mexico, which will become Dr Pepper Snapple Group, Inc. (or DPS) following the demerger.
Comparative statements
In this Report, Cadbury Schweppes makes certain statements with respect to its market position, or its products’ or brands’ market positions, by comparison with third parties or their products or brands. These statements are based on independent sources, such as Euromonitor and AC Nielsen, and are accurate to the best of the knowledge and belief of Cadbury Schweppes.
CADBURY SCHWEPPES PLC
Introduction
The Group’s current principal businesses are confectionery and non-alcoholic beverages. The Group has the largest share of the global confectionery market with broad participation across its three categories of chocolate, gum and candy and by geography. In beverages, it has a strong regional presence in North America and Australia.
Proposed demerger
In March 2007, the Group announced that each of the Confectionery and Americas Beverages businesses had the appropriate platforms to deliver enhanced shareowner returns from being focused, stand-alone businesses.
On 10 October 2007, the Group announced that it had decided to focus on a demerger of its Americas Beverages business through a listing on the New York Stock Exchange. The business will be renamed Dr Pepper Snapple Group Inc (DPS). The Confectionery Group will retain a beverages business in Australia, which in 2007 accounted for approximately 8% of Confectionery revenue.
On 11 March 2008, the Group announced that definitive credit agreements had been signed and that the anticipated demerger of Americas Beverages and a Group reorganisation (by a scheme of arrangement) is expected to complete on 7 May 2008, subject to legal and shareowner approvals being achieved at the General Meetings being held on 11 April 2008 and satisfaction of financing conditions.
It is anticipated that on 2 May Cadbury plc will be inserted as a new holding company above Cadbury Schweppes plc and on 7 May DPS will be demerged as a listed company on the New York Stock Exchange. Cadbury plc will be listed on the UK Stock Exchange and have a secondary listing on the New York Stock Exchange via an ADR programme.
Origins
Our origins date back to the founding of Schweppes, a mineral water business, by Jacob Schweppes in 1783, and the opening of a shop which sold cocoa products by John Cadbury in 1824. The two businesses were merged in 1969 to create Cadbury Schweppes.
In the last 25 years, Cadbury Schweppes has significantly changed its geographic and product participation in the confectionery and beverages markets, mainly through a programme of business purchases and sales. In 1997, the Group adopted its ‘Managing for Value’ philosophy with the aim of delivering superior returns for its shareowners. The Group subsequently made disciplined capital allocation decisions focused on the two growing and profitable markets of confectionery and beverages, and refined its portfolio through an active acquisition and disposal programme, which improved its participation in its chosen markets and strengthened its competitive position.
Developments in Confectionery
The acquisition of Adams for US$4.2 billion in 2003 was a significant step-change in the Group’s participation in the global confectionery market, both by category and by geography. Through Adams, the Group nearly doubled its global confectionery market share to 10% and has become the global number two company in gum with a 27% market share, and nearly doubled its global candy market share to 7%. (Source: Euromonitor 2006). By geography, Adams significantly increased the Group’s presence in markets in North and South America, Europe and Asia, and resulted in higher growth in emerging markets representing around 30% of the Group’s confectionery revenues.
Following the Adams acquisition, the Group focused in confectionery on:
  integrating the Adams business;
 
  improving capabilities and commercial execution to increase revenue growth;
 
  further strengthening its confectionery platform through selected bolt-on acquisitions; and
 
  reducing costs through its ‘Fuel for Growth’ programme to improve margins and allow investment behind growth initiatives.
The Adams integration was completed one year ahead of schedule in 2005, with the business outperforming the acquisition plan. This was primarily due to the strength of the Group’s performance in major gum markets such as the US, and in the roll-out of Adams products and technologies across the Group, such as in France under the Hollywood brand and in Northern Europe and Russia under the Stimorol and Dirol brands.
Since the Adams acquisition, the Group has also invested in a small number of targeted bolt-on acquisitions in faster-growing, emerging markets and in brands with strong growth potential. The total investment has been approximately £500 million, with acquisitions including: Green & Black’s, the UK premium chocolate brand; Kent and Intergum, the leading candy and gum businesses respectively in Turkey; Dan Products, the leading gum business in South Africa; Kandia-Excelent, the second largest confectionery company in Romania and Sansei Foods Co. Ltd, a Japanese functional candy company. At the same time, a number of small, low growth and non-core brands and businesses have been sold.

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Developments in beverages
In beverages, the Group has significantly reduced its geographic participation while strengthening its position in a small number of retained markets to strengthen these businesses.
In the US, from the 1980s onwards, the Group’s beverages presence was developed from its Schweppes base through acquisition to form a balanced portfolio of strong carbonated and non-carbonated brands. In the late 1990s, the Group began to strengthen its US route to market with the creation of its bottling joint venture (latterly Dr Pepper/Seven Up Bottling Group) in 1998, which subsequently accelerated the consolidation of the independent bottling sector through the acquisitions of several independent bottling companies.
At the same time, the Group sold its beverages businesses in markets where it believed it did not have a sustainable competitive advantage. Disposals included: the Group’s 51% stake in Coca-Cola & Schweppes Beverages (1997), the Group’s beverages brands in approximately 160 markets (1999), and the Group’s remaining European and South African beverages businesses (2006).
In the Americas, the North American operations of Dr Pepper/Seven Up, Mott’s and Snapple were merged under a single management organisation in late 2003. This enabled the business to derive significant cost savings and leverage its scale with customers and suppliers across its portfolio of carbonated and non-carbonated soft drinks.
By concentrating resources on a selection of advantaged brands and by focusing on innovation and market place execution under this new structure, Americas Beverages performed well. In 2006 and 2007, a further step was taken in securing the sustainability of this performance by the acquisition and integration of a number of bottling companies to strengthen the Group’s beverages route to market in the US.
Operations
Market share information, except where otherwise indicated, is sourced from the latest available information from Nielsen, Euromonitor, Beverage Digest or IRI.
In 2007 the Group generated revenues of approximately £8 billion. The revenues from confectionery accounted for 59% with 5% coming from Australia beverages and the remaining 36% coming from Americas Beverages.
The charts below show the relative size of the regions (excluding the central costs in 2007):
FY 2007 Revenue by Region
()
FY 2007 Profit from Operations1 by Region
()

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CONFECTIONERY
Global confectionery market
Confectionery operates in the global confectionery market. The market is large, growing and has attractive dynamics.
Global Confectionery Market Category Share
by US Dollar Value
(PIE CHART)
The global confectionery market is the world’s fourth largest packaged food market. It represents 9% of that market, and has a value at retail of US$141 billion. Chocolate is the largest category, accounting for over half of the global confectionery market by value.
Globally, confectionery is growing at around 5% per annum, faster than many other packaged food markets.
Developed markets, which account for around 67% of the global market, grew 3% per annum between 2001 and 2006. Premium and wellness products, such as high cocoa solids chocolate and functional and sugar-free candy and gum, are driving growth in these markets. Growth in premium products increased chocolate market growth by around 1% per annum in the 2001–2006 period, while, in wellness, sugar-free gum grew at around 8% per annum.
Confectionery: Developed Market Annual Growth 2001–2006
(BAR GRAPH)
Confectionery: Emerging Market Annual Growth 2001–2006
(BAR GRAPH)
Emerging markets grew at around 10% per annum between 2001 and 2006, with strong growth across all categories. Per capita consumption of confectionery in emerging markets is significantly below that in developed markets. Growth is being driven by increasing per capita consumption, which is closely correlated with per capita wealth increases, and by population growth.

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By participant, the market is relatively fragmented, with the five largest confectionery companies accounting for less than 40% of the market and the top 10 for less than 55%. There are a large number of companies which participate in the markets on only a local or regional basis.
Gum is the most concentrated category, with the two largest companies accounting for 62% in 2006. In chocolate, the five largest companies accounted for over half of the market, but in candy, the top five accounted for only a quarter.
The confectionery market is primarily branded: there is a low level of private label sales and products are sold through a wide range of outlets.
Cadbury Schweppes in the global confectionery market
Cadbury Schweppes’ leadership of the global confectionery market by value is underpinned by number one or number two confectionery market positions in 20 of the world’s 50 largest confectionery markets by retail sales value. Markets where the Group has number one or number two market positions accounted for around three quarters of Confectionery Group’s revenue in 2007.
Of the Confectionery revenue, chocolate and cocoa-based beverages accounted for 42%, gum 29% and candy 21%. Australia beverages accounts for the remaining 8%.
The Group has a strong presence in faster growing categories and markets. Gum, 29% of Confectionery revenue, is a prime example. In 2007, wellness confectionery, including products like sugar-free and fat-free products, and medicated candy grew in the confectionery market as a whole by 8% per annum from 2002–2007, against 5% growth for other products. Our wellness sub-category, which includes dark chocolate, accounts for around 30% of Confectionery revenues.
Market share in the global confectionery market (US dollar share)
                                 
    Global            
    Confectionery            
    Market   Chocolate   Gum   Candy
 
Cadbury Schweppes
    10.1 %     7.3 %     27.0 %     7.4 %
Mars
    8.9 %     14.7 %           2.8 %
Nestle
    7.7 %     12.5 %     0.1 %     2.9 %
Wrigley
    5.5 %           34.5 %     2.2 %
Hershey
    5.5 %     8.3 %     1.3 %     2.7 %
Kraft
    4.3 %     7.8 %     0.1 %     0.3 %
Ferrero
    4.2 %     6.8 %           1.5 %
         
Source: Euromonitor:
The Group also has the largest (by value) and most broadly spread emerging markets business of any confectionery group, which in 2007 accounted for approximately one-third of confectionery revenue. From 2004 to 2007, revenue of the Group’s emerging markets confectionery businesses grew on average by 12% per annum on a like-for-like basis.
The Group competes against multinational, regional and national companies. The Group’s brands include many global regional and local favourites. Like the other top five chocolate groups, our chocolate share is built on regional strengths, including strong positions in the UK, Ireland, Australia, New Zealand, South Africa and India. The largest brand in chocolate is Cadbury Dairy Milk; other key brands are Creme Egg, Flake and Green & Black’s.
The Group has a number two position in gum with Trident being the largest brand. This position is built on strong market share in the Americas, in parts of Europe (including France, Spain & Turkey) and in Japan, Thailand and South Africa. Other brands include Hollywood, Stimorol, Dentyne, Clorets and Bubbaloo.
In candy the largest brand is Halls accounting for around one third of candy revenues, and other significant regional and local brands include Bassett's, Maynards, the Natural Confectionery Company and Cadbury Eclairs.
The Group uses a wide variety of raw materials purchased from a broad range of suppliers. Principal inputs are packaging materials (such as paper and plastics), sugar and other sweeteners, cocoa, and dairy products. Confectionery will seek to minimise the impact of price fluctuations and ensure security of supply by entering into forward purchase agreements and long-term contracts where appropriate.
Regions in Confectionery
Confectionery was organised into four regions with effect from 1 July 2007. The four regions are: Britain, Ireland, Middle East and Africa (BIMA); Europe (including Russia and Turkey); Americas; and Asia Pacific. Further information on each of these regions is set out below.
In 2006, the commercial confectionery operations were reorganised under a category structure, with each of the three confectionery categories of chocolate, gum and candy managed on a global basis. This structure will be further embedded in the regions to ensure excellence of execution and increase efficiency.
This structure enables the regions to focus on delivering the commercial agenda and top-line growth, and allows the functions to develop and drive global strategies and processes towards best in class performance, while remaining closely aligned to the regions’ commercial interests.
Within regions, Confectionery will also be clustered to reduce the number of business units and increase focus, and global, regional and business unit head offices will be co-located to reduce building and back-office costs. Further savings will be achieved through allocating dual roles to functional leaders to reduce headcount and increase efficiency of decision-making.

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Britain, Ireland, Middle East and Africa (BIMA)
                         
                    % of Group
            FY 2007     Total 1
 
Revenue
          £ 1,579m       20 %
Underlying profit from operations2
          £ 169m       14 %
Underlying operating margin
            10.7%        
Profit from operations
          £ 99m       10 %
Operating margin
            6.3%        
Number of manufacturing sites
            21          
 
Main markets:   UK, Ireland, South Africa, Egypt, Nigeria
 
Main Brands:     Cadbury, Green & Black’s, Trident, Stimorol, Chiclets, Bassett’s, Halls, Maynards, The Natural Confectionery Company, Tom Tom, Bournvita
 
1    Excludes Central
 
2    For an explanation of underlying profit from operations and a reconciliation to profit from operations see segmental reporting on pages F7 - F9.
The BIMA region is the largest Confectionery region in terms of revenue. It mainly comprises chocolate businesses in the UK, Ireland, South Africa and Nigeria, but also includes market leading gum businesses in South Africa and Egypt, and candy businesses throughout the region.
Britain and Ireland is the largest confectionery business in BIMA, representing around 80% of revenue. The Group currently has a leading 28.1% share in the UK, the world’s second largest confectionery market. In the UK and Ireland, we sell chocolate principally under the Cadbury and Green & Black’s brands, and candy products under brands including Bassett’s, Halls, Maynards, The Natural Confectionery Company and Trebor. Trident gum was launched in the UK in early 2007 and has secured a 10% market share during the year.
The Group is the leading confectionery group in Africa. In the Middle East and Africa, the Group’s main confectionery operations are in South Africa, Nigeria and Egypt.
In South Africa, we have the leading confectionery market share at 31%. We sell chocolate and candy under the Cadbury and Halls brands, and, with the acquisition of the Dan Products business in 2006, we now have a leading share of the South African gum market, mainly under the Stimorol brand, at 57%.
In 2006, the Group increased its shareholding in Cadbury Nigeria to 50.02% . The Nigerian business sells candy, food beverages and bubble gum. Its lead brands include Tom Tom, our biggest selling candy in Africa, Bournvita and Bubba bubble gum. In Egypt, we sell products under the Cadbury, Bim Bim and Chiclets brand names and have a 41% share of the confectionery market. The Group also operates in Morocco, Lebanon, Ghana and Kenya.
On 10 April 2008 the Company was notified that the Nigerian Securities & Exchange Commission (“Nigerian SEC”) had fined the Group’s subsidiary, Cadbury (Nigeria) plc, a total of approximately £90,000 in connection with Cadbury Nigeria’s previously disclosed financial improprieties which occurred principally while it was an associate of the Group. In addition, directors of Cadbury Nigeria were banned from being directors of any public Nigerian company for varying periods of time. Mr M Shattock, a member of the Company’s Executive Committee and a director of Cadbury Nigeria, was banned from being a director of a public Nigerian company for a period of one year. The Nigerian SEC has referred the matter to the Economic and Financial Crimes Commission (EFCC) for further investigation. The Company reserves the right to appeal these decisions.
Europe
                         
                      % of Group  
            FY 2007       Total1 
 
Revenue
          £ 879m       11 %
Underlying profit from operations2
          £ 91m       8 %
Underlying operating margin
            10.4%        
Profit from operations
          £ 70m       7 %
Operating margin
            8.0%        
Number of manufacturing sites
            18          
 
Main markets:   France, Poland, Spain, Russia, Turkey, Greece, Scandinavia, Romania  
 
Main Brands:   Hollywood, Halls, Wedel, Trident, Dirol, Stimorol, Kent, Poulain,   First, Falim
 
1    Excludes Central
 
2    For an explanation of underlying profit from operations and a reconciliation to profit from operations see segmental reporting on pages F7 - F9.
The Europe region comprises businesses in Western and Eastern Europe (including Russia and Turkey), excluding the UK and Ireland. It principally sells candy and gum, with the only significant chocolate businesses in Poland, Russia and France.
France is the region’s largest operating unit and confectionery has the leading position in the French confectionery market – the world’s eighth largest. We have a 47% share of the French gum market, principally under the Hollywood brand, and also sell candy under the La Pie Qui Chante and Carambar brands, and chocolate, mainly under the Poulain brand. In 2007, Halls was launched in France, and the brand now has a 5% share of the candy market.
Gum is sold under the Trident brand in Spain, Portugal and Greece, and under the Stimorol and V6 brands in Switzerland, Denmark, Belgium and Sweden, while candy is sold under the Halls brand in Spain and Greece. Chocolate is sold under the Wedel brand in Poland, where we have a 15% market share.
Confectionery also operates in the Netherlands and Switzerland selling mainly gum.
Other important businesses in the Europe region are those in Russia and Turkey. We have a 27% share of the gum market in Russia through the Dirol brand, and also sell medicated candy under the Halls brand and chocolate under the Cadbury brand. In Turkey, we have the leading share of the candy market at 54%, with brands including Kent, Missbon, Olips and Jelibon. The acquisition of Intergum, the leading Turkish gum business, which completed in August 2007, has resulted in a 63% share of the Turkish gum market, primarily under the Trident, First and Falim brands.
In June 2007, the Group acquired 93.32% of Kandia-Excelent, which has a 21% share of the Romanian confectionery market, resulting in the Group having a 27% share of candy and the second largest share of the chocolate market at 18%. Since its initial acquisition, we have now increased our shareholding in Kandia-Excelent to 95%.

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Americas Confectionery
                         
                      % of Group  
            FY 2007       Total1 
 
Revenue
          £ 1,372m       17 %
Underlying profit from operations2
          £ 248m       20 %
Underlying operating margin
            18.1 %        
Profit from operations
          £ 205m       20 %
Operating margin
          14.9%      
Number of manufacturing sites
            8          
 
Main markets:
  US, Canada, Mexico, Brazil, Argentina, Colombia, Venezuela  
 
Main Brands:
  Trident, Halls, Dentyne, Stride, Bubbas, Clorets, Chiclets, Cadbury,  
 
1     Excludes Central
 
2    For an explanation of underlying profit from operations and a reconciliation to profit from operations see segmental reporting on pages F-7 - F-9.
The Group has businesses in all the Americas region’s major countries, including the US, Canada, Mexico, Brazil, Argentina, Venezuela and Colombia. Approximately 54% of sales are in the US and Canada, with the remainder in Mexico and Latin America. Outside Canada, the region sells principally gum and candy. Four brands (Trident, Dentyne, Halls and the Bubbas) account for around 65% of revenue. In the US, the world’s largest confectionery market, we have the second largest market share in gum at 34%, mainly through the Trident and Dentyne brands, and the leading share at 56% in cough/cold confectionery through Halls. In 2006, a new US gum brand, Stride, was launched, which now has a 5% share of the US gum market.
The Group has the largest confectionery business in Canada, the world’s 11th largest confectionery market, with an overall 20% market share, and has leading market positions in gum, candy and cough/cold confectionery, and a top three position in chocolate. In Latin America, the Group has the leading overall confectionery market share at 18%, double that of its nearest competitor. It has a 65% share of the Latin American gum market, and leading market shares in gum in Mexico, Brazil, Venezuela, Argentina and Colombia. It also has the second largest share of the candy confectionery market at 9%.
The Group has a broad-reaching distribution infrastructure in Latin America which enables it to supply a diverse customer base of small shops and kiosks. In Mexico, the Group has a 78% share of the gum market and an 85% share of the candy market. Other brands sold in the Americas region include Chiclets, Clorets, Swedish Fish, Sour Patch Kids, Beldent, Bazooka and Mantecol.
Asia Pacific
                         
                      % of Group  
            FY 2007       Total1
 
Revenue
          £ 1,254m       16 %
Underlying profit from operations2
          £ 159m       13 %
Underlying operating margin
            12.7%      
Profit from operations
          £ 146m       15 %
Operating margin
          11.6%      
Number of manufacturing sites
          19 confectionery          
 
          7 beverages          
 
Main markets:     Australia, New Zealand, India, Japan, Thailand, China, Malaysia,   Indonesia, Singapore, Philippines, Korea  
 
Main Confectionery Brands:     Cadbury, Halls, Recaldent, Clorets, Bournvita, The Natural   Confectionery Co.  
Main Beverage Brands   Schweppes, Solo, Spring Valley, Sunkist  
 
1    Excludes Central
 
2    For an explanation of underlying profit from operations and a reconciliation to profit from operations see segmental reporting on pages F-7 - F-9.
Asia Pacific comprises confectionery operations in Australia, New Zealand, India, Japan, Malaysia, Indonesia, Thailand and China, and an Australian beverages business, which accounts for approximately 32% of the region’s revenue.
In 2006, the Group entered the Vietnamese market through a third-party distribution agreement, and in 2007 strengthened its position in the Japanese candy market with the acquisition of 96% of Sansei Foods, a Japanese functional candy company.
Australia and New Zealand are our largest markets in the region. Confectionery has a leading position in the Australian confectionery market, with a number one position in chocolate (53% market share), and a strong presence in candy. The Group’s main chocolate brand in Australia is Cadbury Dairy Milk and in New Zealand, brands include Cadbury Dairy Milk and Moro. The Group has a number one position in New Zealand’s confectionery market with a 47% share.
The products of the Group’s Australian beverages business are sold under the Schweppes, Cottee’s, Solo, Spring Valley, and Sunkist brand names. Australian Beverages also has a licence to manufacture, sell and distribute Pepsi, Red Bull, 7 UP, Mountain Dew and Gatorade. The beverages business manufactures, distributes and markets its own products, and also manufactures concentrate and bottles product for other manufacturers.
Other significant markets in this region include India, Japan and Thailand. Our Indian business has a leading presence in chocolate with a 71% market share, and also sells candy under the Eclairs and Halls brands, and Bournvita. In Japan, we sell mainly gum under the Recaldent and Clorets brands, and have the number two position in gum with a 20% market share.
The Group also has leading market shares in Thailand in gum and candy at 63% and 31% respectively. In Malaysia, it has a number one market share in chocolate at 29%, and in gum, a number two position through the Dentyne brand with a 19% market share.

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AMERICAS BEVERAGES
On 10 October 2007, the Group announced that it had decided to focus on demerging its Americas Beverages business through a listing on the New York Stock Exchange. The Americas Beverages business will be renamed Dr Pepper Snapple Group, Inc. (DPS) following the demerger.
Background
Americas Beverages operates as a brand owner, a bottler and a distributor through its five segments as follows:
  its beverage concentrates segment is a brand ownership business;
 
  its finished goods segment is a brand ownership and a bottling business and, to a lesser extent, a distribution business;
 
  its bottling group segment is a bottling and distribution business;
 
>     its Snapple distributors segment is a distribution business; and
 
>     its Mexico and the Caribbean segment is a brand ownership and a bottling and distribution business.
As a brand owner, Americas Beverages builds its brands by promoting brand awareness through marketing, advertising and promotion, and by developing new and innovative products and product line extensions that address consumer preferences and needs. As the owner of the formulas and proprietary know-how required for the preparation of beverages, Americas Beverages manufactures, sells and distributes beverage concentrates and syrups used primarily to produce carbonated soft drinks (CSD) and manufactures, bottles, sells and distributes primarily non-CSD finished beverages.
Most of Americas Beverages’ sales of beverage concentrates are to bottlers who manufacture, bottle, sell and distribute its branded products into retail channels. Approximately one third of its U.S. beverage concentrates by volume are sold to its Bottling Group, with the balance being sold to third-party bottlers affiliated with Coca-Cola or PepsiCo, as well as independent bottlers. Americas Beverages also manufactures, sells and distributes syrups for use in beverage fountain dispensers to restaurants and retailers, as well as to fountain wholesalers, who resell it to restaurants and retailers. In addition, Americas Beverages distributes non-CSD finished beverages through its own operations and through third-party distributors.
Americas Beverages’ bottling and distribution businesses manufacture, bottle, sell and distribute CSD finished beverages from concentrates and non-CSD finished beverages and products mostly from ingredients other than concentrates. They sell and distribute finished beverages and other products primarily into retail channels either directly to retail shelves or to warehouses through their large fleet of delivery trucks or through third party logistics providers. Approximately three-quarters of Americas Beverages’s 2006 bottling group net sales of branded products come from its own brands, with the remaining from the distribution of third-party brands such as Monster energy drink, FIJI mineral water and Big Red soda. In addition, a small portion of its bottling group sales come from bottling beverages and other products for private label owners or others for a fee (referred to as co-packing).
Americas Beverages
                         
                      % of Group  
            FY 2007       Total1
 
Revenue
          £ 2,878m       36 %
Underlying profit from operations2
    £ 553m       45 %
Underlying operating margin
            19.2%      
Profit from operations
          £ 486m       48 %
Operating margin
            16.9%      
Number of manufacturing sites
            25        
 
Main markets:   US, Canada, Mexico  
 
Main Beverage Brands:   Dr Pepper, Snapple, Mott’s, Hawaiian Punch, Peñafiel, Clamato,   7 UP, Yoo-Hoo, A&W, Sunkist, Diet Rite, Canada Dry,   Schweppes  
 
1    Excludes Central
 
2    For an explanation of underlying profit from operations and a reconciliation to profit from operations see segmental reporting on pages F-7 - F-9.
Americas Beverages is a leading integrated brand owner, bottler and distributor of non-alcoholic beverages in the United States, Canada and Mexico with a diverse portfolio of flavored CSDs and non-carbonated soft drinks (non-CSDs), including ready-to-drink teas, juices, juice drinks and mixers. Its brand portfolio includes popular CSD brands such as Dr Pepper, 7 UP, Sunkist, A&W, Canada Dry, Schweppes, Squirt and Peñafiel, and non-CSD brands such as Snapple, Mott’s, Hawaiian Punch, Clamato, Mr & Mrs T, Margaritaville and Rose’s. Its largest brand, Dr Pepper, is the number 2 selling flavoured CSD in the United States according to ACNielsen.
Americas Beverages operates primarily in the United States, Mexico and Canada, the first, second and tenth largest beverage markets, respectively, by CSD volume, according to Beverage Digest. It also distributes its products in the Caribbean. In 2007, 89% of its net sales were generated in the United States, 4% in Canada and 7% in Mexico and the Caribbean.

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GROUP STRUCTURE
The Group is managed by the Cadbury Schweppes plc Board of Directors, which delegates day-to-day management to the Chief Executive’s Committee (CEC).
Cadbury Schweppes plc Board of Directors and Chief Executive’s Committee (CEC)
The Board is responsible for the overall management and performance of the company, and the approval of the long-term objectives and commercial strategy.
The Chief Executive’s Committee, which comprises the Chief Executive Officer, the leader of each region and function, and the Group Strategy Director, reports to the Board and is accountable for the day-to-day management of the operations and the implementation of strategy. This team is responsible to the Board for driving high level performance of the growth, efficiency and capability programmes as well as for resource allocation.
The CEC develops global commercial strategy and will address supply chain and major operating issues arising in the normal course of business. This includes reviewing the regions’ and functions’ performance contracts, and determining necessary action relating to financial policy, targets, results and forecasts. It approves some capital and development expenditures according to authorities delegated by the Board, reports to the Board on the sources and uses of funds, cash position and capital structure, and reviews the structure and policy of the borrowings. The CEC evaluates foreign exchange, interest rate and other risk management policies and submits an annual risk management report to the Board. It also reviews proposed acquisitions and disposals, joint ventures and partnerships before submission to the Board, and reviews and approves legal and human resources matters.
Functions
The Group is organised into six global functions as well as the four Confectionery and one Americas Beverages regions explained above. This structure enables the regions to focus on delivering the Group’s commercial agenda and top-line growth, and allows the functions to develop and drive global strategies and processes towards best in class performance, while remaining closely aligned to the regions commercial interests.
Supply Chain
Supply Chain ensures the reliable supply of products, whether manufactured by the Group or by a third party. Supply Chain’s role encompasses sourcing of ingredients and packaging materials, planning, manufacturing, distribution and customer services, as well as quality and safety of products, and employee safety. Supply Chain is responsible for managing the fixed assets of the Groups manufacturing facilities and warehouses.
Commercial
The role of Commercial is to facilitate higher revenue growth from the business units than they could otherwise achieve on a stand-alone basis. Commercial defines category and portfolio strategy; ensures the Group has best-in-class commercial capabilities; partners with other functions such as Science & Technology and Supply Chain in creating innovation; and co-ordinates brand management, consumer insights, and global customer strategy.
Science & Technology
Science & Technology leads the Group’s technical innovation programme. This function sets and communicates global technical priorities, establishes and co-ordinates the science agenda and facilitates global knowledge management and best-practice transfer. It prioritises and funds technology developments which underpin the innovation agenda, including longer-term globally-applicable development programmes. It also co-ordinates nutrition initiatives as a key element of the Group’s food policy and, together with Group Legal, creates a strategy for the Group’s intellectual property assets.
The Group uses its own Science and Technology facilities as well as those of suppliers and has a growing number of external collaborations with university, consultant and industrial partners. The major Science and Technology facilities are at Reading, UK, Hanover Park, New Jersey, and Trumball, Connecticut. The Reading facility provides science and technology support to the Group both globally and to the BIMA and Europe region and to third parties. Hanover Park serves Americas Confectionery and Trumball Americas Beverages. The Group also has a number of smaller facilities which support business units.
Human Resources
The role of the Human Resources function is to improve performance by enhancing the effectiveness of day-to-day working practices, people capabilities and the quality of their output. Human Resources supports the business in delivering its goals by putting in place the right people for the right job; by helping develop and support the most effective organisational strategies and structures; and by attracting, retaining and developing employees and rewarding the right behaviours and outcomes.
Finance
The role of Finance is focused on a strong business partnership with the commercial operators in the Group, while maintaining a robust financial control environment. The function sets low cost, IT-enabled common internal processes and standards for financial reporting and control, and ensures high quality external reporting which complies with all applicable laws and regulations. It is responsible for setting the Group’s annual contracts (or budgets), for developing longer-term strategy and for managing acquisitions and disposals. It is also responsible for managing financial communications and the Group’s relationship with the investment community.
Legal and Secretariat
Legal and Secretariat partners and supports the regions and other functions by taking responsibility for a broad range of legal and secretarial activities. These include corporate governance matters; compliance with US and UK securities regulation and legislation; effective management of the Group intellectual property portfolio; mergers and acquisitions; litigation management; general contract work and incident management.

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Production assets
As of 31 December 2007 the Group had a total of 102 manufacturing plants and bottling facilities, of which 21 were located in Britain, Ireland, Middle East and Africa; 18 were located in Europe; 8 in Americas Confectionery; 30 in Asia Pacific; and 25 in Americas Beverages. Of these, 69 are engaged in the manufacture of confectionery products and 33 are engaged in the manufacture and bottling of beverage products. There are no encumbrances or environmental issues that we expect will materially affect our utilisation of our properties.
                         
    Confectionery   Beverages   Total
 
BIMA
    21             21  
Europe
    18             18  
Americas Confectionery
    8             8  
Asia Pacific
    22       8       30  
Americas Beverages
          25       25  
       
Total
    69       33       102  
       
The Company owns all of the above facilities, except for four in Asia Pacific and six in Americas Beverages, all of which are leased.
All the facilities are considered to be in good condition, adequate for their purpose and suitably utilised according to the individual nature and requirements of the relevant operations. We have a continuing programme of improving and replacing property when appropriate, to meet the needs of the individual operations.
The table on this page details our material properties, representing those sites with the most significant unmitigated loss exposures. All are manufacturing facilities and are owned by the Group except where indicated. These properties have a capacity utilisation in the range of 33-100%.
Material properties
                     
                Production capacity
Location   Principal products   Area in ‘000 sq ft   in ‘000 tonnes
Aspers, PA., US
  Beverages     620       737 *
Bournville, UK (part leasehold)
  Chocolate     1,766       140  
Cali, Colombia
  Candy and Gum     178       72  
Chirk, UK
  Confectionery feedstocks     261       53  
Claremont, Australia
  Chocolate     616       64  
Dunedin, New Zealand
  Candy     232       30  
Kent, Turkey
  Gum     820       64  
Overland, MO., US
  Beverages, Concentrates     199       161 *
Puebla, Mexico
  Gum     408       101  
Ringwood, Australia
  Chocolate     610       52  
Rockford, ILL., US
  Gum     536       75  
Sheffield, UK
  Candy     503       53  
Somerdale, UK
  Chocolate     933       91  
Williamson, NY., US
  Beverages     578       492 *
Tallaght, Ireland
  Gum     301       14  
       
*   In millions of litres
Capital Expenditure
See Item 5 “Operating and Financial Review and Prospects” for a description of our capital expenditure.
Employees
                         
Average employee headcount   2007   2006   2005
 
BIMA
  14,041         14,309       12,630  
Europe
  9,099         9,148       8,075  
Americas Confectionery
  14,484         14,568       14,175  
Asia Pacific
  13,713         13,354       12,624  
Central
  805         761       769  
Americas Beverages
  19,515         14,562       6,605  
     
Continuing operations
  71,657         66,702       54,878  
Europe Beverages
          309       3,703  
     
Total
  71,657         67,011       58,581  
     

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The average employee headcount in the UK in 2007 was 7,618 (2006: 7,847, 2005: 7,460).
The average employee headcount disclosed above for 2006 reflects the incremental heads for CSBG only for the period since acquisition. On a pro forma basis assuming that CSBG had been acquired at the start of the year the average headcount for Americas Beverages and Continuing Operations in 2006 would have been 18,372 and 70,512 respectively.
Marketing, Food, Consumer Trends
Within the overall context of our business as a manufacturer of confectionery and beverages, we aim to contribute to consumer diet, health and lifestyle solutions. We are innovating and evolving our product portfolio to meet changing consumer needs and provide more choice. Responsible consumption of our products is important to us and to the long-term success of our brands. We are including improved nutritional information on products and messages to reinforce the role of treats, encourage responsible consumption and help consumers achieve a balanced lifestyle. We have already begun to introduce alternative products with lower fat, sugar, and salt options, as well as organic, nutrient-enriched, functional, and natural ingredients.
We have a global Food Insights and Action Group, led by Todd Stitzer, Chief Executive Officer, that reviews and establishes our strategy in this area. Our regional Food Strategy into Action Groups help translate strategy into action. We engage with a broad range of stakeholders and work hard to understand their views and expectations of us so that our decisions are based on knowledge and sound science.
We will continue to listen to what our consumers and stakeholders tell us while we remain true to our sustaining core purpose — to create brands that people love and trust.
Environment, Health and Safety (EHS)
We recognise our responsibility to help preserve the future of our planet while continuing to create sustainable value for the business. We will do this by minimising environmental impacts and being cost effective. We are determined to reduce the carbon intensity of our global operations and use energy more efficiently as a key part of our commitment to sustainable growth and to help combat climate change.
We have in place an integrated EHS policy and standards. The standards are based on both ISO 14001 and OHSAS 18001. Our EHS policy and standards deal with environmental issues related to the manufacturing of our products, energy, water, packaging, protecting bio-diversity and the eco-systems from which we source raw materials, the management of our supply chain and the distribution, sale and consumption of our products.
All of our manufacturing sites are audited on a rolling programme by the Group EHS Assurance Department and areas for improvement are identified. Some sites are also externally audited and certified to one or more of the internationally recognised standards, such as ISO 14001 or OHSAS 18001.
Protecting the health and safety of employees is fundamental to Our Business Principles. In 2006, we established a Quality Environment Health & Safety Group, chaired by our President of Global Supply Chain. This group consists of board level representation and senior leadership from different functions to drive forward our agenda in this area. The remit of this committee includes quality and food safety. We are implementing additional programmes to strengthen performance.
Human Rights and Employment Standards, and Ethical Sourcing and Procurement
Ethical trading and respect for human rights are deeply held values at Cadbury Schweppes. Our Human Rights and Ethical Trading (HRET) policy has been developed taking into account international standards — such as the International Labour Organisation conventions, the UN Declaration of Human Rights, and OECD guidelines — as well as cultural and industry best practice from our local markets. Adopted by the Main Board in 2000, it covers core labour rights and dignity at work; health and safety in the workplace; fair remuneration; diversity and respect for differences and opportunity for development.
The HRET policy is there to guide all Cadbury Schweppes’ business units, as well as our suppliers and the business strategy in this area. The review of the effectiveness of policy is led by a group of senior managers who regularly assess progress.
Ethical sourcing and sustainability are two key elements of how we manage our Global Supply Chain. Ethical Sourcing Standards for the Group were put in place in 2002. These standards continue to be underpinned with a system for supplier assessment, training for employees and a programme of engagement with our suppliers. Our aim is to make sure our products are sourced and produced in a sustainable manner.
In 2006, we continued to play a leading role in the multi-stakeholder alliance of the International Cocoa Initiative. We play a significant role with others in our sector to promote responsible labour practices and to stimulate more prosperous and sustainable cocoa farming, working with farmers. Having achieved a target for developing certification in 2005, the next milestone is to introduce the certification process in at least 50% of cocoa farmers in West Africa by July 2008. There is strong support from Governments in Ghana and Ivory Coast although progress in the latter continues to be challenged by civil and military unrest. With 1.5 million smallholder farmers in West Africa, only a fraction of whom are engaged in “FairTrade” infrastructure, we believe we can make a greater impact in ethical trade by working broadly on the root causes of poverty in these areas through education and technological development. Farmer field schools have helped over 25,000 farmer families, both increasing awareness of acceptable labour practices and generating increases in farmer family incomes.

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Sustainable agriculture is an important opportunity for us, as well as for the farming communities we work with. We have partnered with the Earthwatch organisation since 2005 in an innovative programme in Ghana with Cadbury Schweppes’ colleagues working with local scientists and farmers on sustainable cocoa growing and biodiversity within cocoa farming.
We continue to be an active member of the Roundtable for Sustainable Palm Oil, and are now part of the newly formed Responsible Sugar Cane Initiative.
At Cadbury Schweppes, we aim to build a business where employees are committed and engaged. We also want to reflect the diversity and inclusiveness in our workforce and in our leadership teams. Our global employee climate survey helps the business assess the commitment and engagement to the business of its employees, including opportunities to embrace CSR in their everyday work. Cadbury Schweppes introduced an equal opportunity and diversity policy in 1993. In 2006, we set up a Diversity & Inclusiveness Leadership Team chaired by our Chief Science and Technology Officer and made up of members from across the business including two Regional Presidents.

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Group Companies
Cadbury Schweppes public limited company is a holding company that operates through its subsidiaries and associated undertakings, which are set forth below.
                         
                    Proportion of  
            Country of     issued share  
            incorporation     capital held  
    Activities     and operation     if not 100%  
 
Details of principal associated undertakings
                       
Camelot Group plc*
    (c )   Great Britain (ii)     20 %
Crystal Candy (Private) Ltd
    (a )   Zimbabwe (i)     49 %
Meito Adams Company Ltd
    (a )   Japan     50 %
 
                       
Details of principal subsidiary undertakings
                       
Operating companies (unless otherwise stated)
                       
 
                       
United Kingdom:
                       
Cadbury Trebor Bassett (an unincorporated partnership operating in Great Britain between Cadbury Ltd, Trebor Bassett Ltd and The Lion Confectionery Co Ltd)
    (a )     n/a          
 
                       
Europe:
                       
Cadbury España, SL
    (a )   Spain        
Cadbury France
    (a )   France        
Cadbury Hellas AE
    (a )   Greece        
Cadbury Ireland Ltd
    (a )   Ireland        
Cadbury Portugal — Produtos de Conféitaria, Lda
    (a )   Portugal        
Cadbury Switzerland Faguet & Co
    (a )   Switzerland        
Cadbury Wedel Sp. zo.o.
    (a )   Poland        
Dandy A/S
    (a )   Denmark        
Dirol Cadbury LLC
    (a )   Russia        
Intergum Gida Sanayi ve Ticaret Anonim Sirketi
    (a )   Turkey        
Kent Gida Maddeleri Sanayii ve Ticaret Anonim Sirketi
    (a )   Turkey (ii)     95.36 %
 
                       
Americas:
                       
Cadbury Adams Brasil Industria e Comercio de Produtos Alimenticios Ltda
    (a )   Brazil        
Cadbury Adams Canada Inc
    (a )   Canada        
Cadbury Adams Colombia
    (a )   Colombia        
Cadbury Adams Distribuidora Mexico, SA de CV
    (a )   Mexico        
Cadbury Adams Mexico, S de RL de CV
    (a )   Mexico        
Cadbury Adams, SA
    (a )   Venezuela        
Cadbury Adams USA LLC
    (a )   US (i)        
Distribuidora Anahuac, SA de CV
    (b )   Mexico (ii)        
Cadbury Beverages Canada Inc
    (b )   Canada        
Cadbury Schweppes Bottling Group Inc
    (b )   US        
Cadbury Stani Adams Argentina SA
    (a )   Argentina (ii)        
Distribuidora de Aguas Minerales, SA de CV
    (b )   Mexico (ii)        
Dr Pepper/Seven Up, Inc
    (b )   US        
Mott’s GP
    (b )   US        
Snapple Beverage Corp.
    (b )   US        
 

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Group companies continued
                         
                    Proportion of  
            Country of     issued share  
            incorporation     capital held  
    Activities     and operation     if not 100%  
 
Other overseas:
                       
Cadbury Adams (Thailand) Ltd
    (a )   Thailand        
Cadbury Confectionery Ltd
    (a )   New Zealand        
Cadbury Enterprises Pte Ltd
    (a )   Singapore        
Cadbury India Ltd
    (a )   India     97.58 %
Cadbury Japan Ltd
    (a )   Japan        
Cadbury Nigeria plc
    (a )   Nigeria     50.02 %
Cadbury Schweppes pty Ltd
    (a )(b)   Australia (i) (ii)        
Cadbury South Africa (Pty) Ltd
    (a )   South Africa        
 
                       
Finance and holding companies:
                       
Alreford Limited
    (c )   Ireland        
Berkeley Re Limited
    (c )   Ireland        
Cadbury Aguas Minerales, SA de CV
    (c )   Mexico (i) (ii)        
Cadbury Schweppes Americas Inc
    (c )   US        
Cadbury Schweppes Asia Pacific Pte Ltd
    (c )   Singapore        
Cadbury Schweppes Finance plc*
    (c )   Great Britain        
Cadbury Schweppes Investments BV
    (c )   Netherlands (i)        
Cadbury Schweppes Investments plc*
    (c )   Great Britain        
Cadbury Schweppes Overseas Ltd
    (c )   Great Britain        
Cadbury Schweppes Treasury Services
    (c )   Ireland (i)        
CBI Holdings Inc
    (c )   US (i)        
Vantas International Ltd*
    (c )   Great Britain        
 
 
*   Investment directly held by Cadbury Schweppes plc
Advantage has been taken of Section 231(5) of the Companies Act 1985 to list only those undertakings as are required to be mentioned in that provision, as an exhaustive list would involve a statement of excessive length.
The nature of the activities of the individual companies is designated as follows:
(a) Confectionery
(b) Beverages
(c) Other (including holding companies)
The percentage voting right for each principal subsidiary is the same as the percentage of ordinary shares held.
Issued share capital represents only ordinary shares or their equivalent except for companies marked (i) where there are also preference shares or (ii) where there are both A and B classes of ordinary shares.
ITEM 4A: UNRESOLVED STAFF COMMENTS
There are no unresolved comments from the SEC staff regarding the Company’s periodic reports under the Securities Exchange Act of 1934.

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ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Explanation of performance analysis
The Group announced that it intends to demerge the Americas Beverages business and subject to the required shareowner approvals and availability of funding this will occur on 7 May 2008. However, at 31 December 2007 Americas Beverages does not meet the criteria of IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ to be presented as a discontinued operation and as such the results of Americas Beverages are included as continuing operations in this Review.
Following the disposal of our beverage businesses in Europe and South Africa (reflecting our strategic decision to exit beverages outside the Americas and Australia) these operations have been classified as a discontinued operation in accordance with IFRS 5 — Non current assets held for sale and discontinued operations (IFRS 5). IFRS 5 requires that the results of discontinued operations be excluded from revenue, profit from operations, financing and taxation and the after-tax result (including any net profit on disposal) of the discontinued operations be shown as a single line item on the face of the income statement below taxation with a corresponding re-presentation of the prior period. Hence in the analysis that follows all reference to revenue growth and profit from operations growth excludes our beverage businesses in Europe and South Africa. A separate discussion of the discontinued operations is presented on page 25.
IFRS 5 requires that the cash flow statement reflects the cash flows of the Group, including our beverage businesses in Europe and South Africa until the point of sale and hence all cash flow analysis, including references to Free Cash Flow (as defined on page 51) include the contribution from these businesses.
During 2007, the Group reorganised its confectionery regions and split the former EMEA (Europe, Middle East and Africa) region into two regions: BIMA (Britain, Ireland, Middle East and Africa) and Europe.
The segmental analysis has therefore been prepared on the basis of the reorganised regions which are: BIMA, Europe, Americas Confectionery, Asia Pacific and Americas Beverages. The segmental analysis for 2006 has been re-presented on this basis.

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The review below starts with an overview of the total Group, both Confectionery and Americas Beverages, that analyses revenue and profit from operations, including the impact of exchange rates, and acquisitions and disposals in 2007 and 2006. As part of the review there is an analysis of marketing, restructuring costs, amortisation and impairment of acquisition intangibles, non-trading items, contract termination gain, UK product recall, IAS 39 adjustment, share of result in associates, financing, taxation, discontinued operations, minority interests, dividends and earnings per share.
Following the total Group summary, there is a review of each of the business segments which comprise Confectionery which are BIMA, Europe, Americas Confectionery, Asia Pacific and Central, followed by the Americas Beverages segment. Each segment reviews revenue, underlying profit from operations and restructuring costs as well as other items excluded from the underlying results where applicable. Underlying profit from operations refers to each segment’s profit from operations before restructuring costs, non-trading items, amortisation and impairment of acquisition intangibles, the contract termination gain, UK product recall and IAS 39 adjustment. This is the measure of profit or loss for each reportable segment used by the CEC and segment management. A reconciliation of each segment’s underlying profit from operations to profit from operations is provided in the segmental reporting on pages F-7 - F-9. The CEC also consider underlying profit from operations before business improvement costs at the reportable segment level.
The meanings of certain terms used in this financial review are as follows:
References to constant currency or constant exchange rates refer to the method we use to analyse the effect on our results attributable to changes in exchange rates by recomputing the current year result using the prior year exchange rates and presenting the difference as exchange movements.
References to acquisitions and disposals refer to the first 12 months’ impact of acquisitions and the last 12 months’ impact of disposals. This impact is referred to as growth from acquisitions and disposals. Once an acquisition has lapped its acquisition date it is included within the base business results as there is a comparative period in the prior year results to compare the performance to. Acquisitions and disposals are excluded from the base business results as this provides comparisons of base business performance for users of the accounts.
References to business improvement costs refer to costs incurred within underlying profit from operations in 2007 that have arisen which are restructuring in nature but are part of an ongoing maintenance of an efficient business. There were no business improvement costs in 2006 as all restructuring was incurred as part of the Fuel for Growth programme.
References to base business or like-for-like refer to changes in revenue, underlying profit from operations, underlying earnings per share and other financial measures from year to year not attributable to exchange rate movements and acquisitions and disposals. When discussing base business or like-for-like at the business segment level changes attributable to business improvement costs are not included.
We believe that removing the effect of exchange rates, acquisitions and disposals and business improvement costs provides shareowners with a meaningful comparison of year on year performance of the base business. A reconciliation of the reported results is included on pages F-7 to F-9.
Sources of revenue and trading costs
Revenue is generated from the sale of branded confectionery products such as chocolate, gum and candy, and the sale of branded carbonated and non carbonated beverage products. Cash is usually generated in line with revenue and there are no significant time lags.
Direct trading costs consisted mainly of raw materials, which for confectionery products are cocoa, milk, sugar and sweeteners, various types of nuts and fruit, and packaging. The raw materials included in beverages are mainly high fructose corn syrup, water, flavourings and packaging. The other major direct cost is labour. Indirect operating costs include marketing, distribution, indirect labour, warehousing, sales force, innovation, IT and administrative costs.
Cash receipts and payments are generally received, and made, in line with the related income statement recognition. The main exceptions to this are:
>   Mark-to-market gains and losses on financial derivatives. The main financial derivatives we employ are cocoa futures, interest rate swaps and currency forwards. At each balance sheet date the fair value of all open financial derivatives are determined and recorded on balance sheet. Where hedge accounting is not available this results in the immediate recognition within the income statement of the movements in the fair value. The associated cash flow occurs when the financial derivative contract matures.
 
>   Up-front contractual payments in Americas Beverages, which are charged to the income statement over the period of the supply contract.
 
>   Depreciation charges for capital expenditure, where the cash is utilised when the capital expenditure is made, and the depreciation is charged to the income statement to match utilisation of the asset.

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Operating review 2007 compared to 2006
Group
                                             
            Base                          
            business     Acquisitions/         Exchange        
    2006     growth     Disposals         effects     2007  
Analysis of results   £m     £m     £m         £m     £m  
 
Revenue
    7,427       459       385           (300 )     7,971  
 
Confectionery1
    4,861       345       (18 )         (95 )     5,093  
 
Americas Beverages
    2,566       114       403           (205 )     2,878  
 
Profit from operations
    909       (60 )     (10 )         (51 )     788  
 
Confectionery
    347       (21 )     (10 )         (14 )     302  
 
Americas Beverages
    562       (39 )               (37 )     486  
 
Profit before tax
    738                                   670  
 
Discontinued operations
    642                                    
 
Basic EPS — continuing
    25.4p                                   19.4p  
 
Basic EPS — continuing and discontinued
    56.4p                                   19.4p  
 
Dividend per share
    14.0p                                   15.5p  
 
1   Confectionery includes BIMA, Europe, Americas Confectionery, Asia Pacific and Central Costs as these principally relate to Confectionery.
The key highlights of 2007 were as follows:
In Confectionery:
>   Base business revenues grew by 7%, above the top end of our new confectionery goal range (of 4–6%), bringing the four year annual growth rate to over 6%;
 
>   Revenue growth was broadly based across most of our markets with gum and emerging markets continuing to show double-digit growth;
 
>   Margins fell by 120bps due to an increase in restructuring costs, a significant increase in growth investment and a further escalation in raw material costs.
 
>   We made good early progress on our new Vision into Action plan including initiating significant elements of our cost reduction programme by the end of the year;
 
>   Acquisitions made during the year significantly strengthened existing positions (Intergum in Turkey and Sansei in Japan) and gave us a strong position in a new emerging market (Kandia-Excelent in Romania).
    In Americas Beverages:
>   Base business revenues grew by 4%, a good result in view of the challenging US CSD market;
 
>   Our CSDs continued to benefit from the trend away from colas to flavoured CSDs and an excellent performance from Snapple reflected highly successful innovation in super-premium teas and juices;
 
>   Margins fell by 500bps reflecting consolidation of bottling acquisitions and the losses arising from the launch of Accelerade (our new sports drink brand);
 
>   A major reorganisation was planned and completed during the fourth quarter and is expected to deliver £35 million of benefit in 2008, a payback of around one year;
 
>   The acquisition of SeaBevs, an independent bottler, strengthened our route to market in the south east of the US.

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1 Review of 2007 Group income statement
(i) Revenue
Revenue at £7,971 million was £544 million or 7% higher than 2006 sales of £7,427 million. The net effect of exchange movements during the year was to decrease reported revenue by £300 million, mainly driven by a weakening in the US Dollar, the Mexican Peso and the South African Rand.
In 2007, acquisitions, net of disposals, resulted in a £385 million increase in reported revenue relative to the prior year. This was primarily due to the inclusion of 12 months of revenue from the 2006 acquisition of CSBG in 2007 compared to 8 months in 2006. The acquisitions made in 2007 were Intergum, a gum business in Turkey which was acquired on 31 August 2007, Sansei Foods, a confectionery company in Japan which was acquired on 19 July 2007 and Kandia-Excelent, a confectionery company in Romania which was acquired on 13 June 2007 and SouthEast Atlantic Beverages (SeaBevs), a bottling group which was acquired on 12 July 2007.
Base business revenue grew £459 million or 6% with growth in all five of our business segments led by Americas Confectionery.
(ii) Profit from operations
Profit from operations decreased by £121 million (13%) to £788 million compared to 2006. This was driven by:
>   an increase in restructuring costs of £67 million;
 
>   a £78 million adverse movement in non-trading items;
 
>   an increase of £4 million in amortisation and impairment of acquisition intangible assets, due to the additional amortisation charge from definite life CSBG customer relationships and contracts; and
 
>   an increase of £10 million charge to the IAS 39 adjustment.
This was partially offset by the £45 million contract termination gain and the absence of the UK product recall charge in 2007 (2006: £30 million).
Currency movements had a £51 million (6%) adverse impact on profit from operations. The full-year impact of acquisitions, net of disposals, was a decrease of £1 million with profit from operations further decreasing by £24 million from business improvement costs included in 2007.
As a consequence of the decrease in profit from operations noted above, operating margin fell by 230 basis points to 9.9%.
Contract termination gain
Following its acquisition by Coca-Cola on 30 August 2007, Energy Brands, Inc. terminated the distribution agreements with Americas Beverages for Glacéau beverage products effective from 2 November 2007. On termination of these agreements a payment of approximately £45 million was received from Energy Brands, Inc.
Marketing
Marketing spend was £707 million in 2007, a 2% increase at actual exchange rates and a 6% increase at constant exchange rates. Confectionery marketing spend as a percentage of revenues was 10% compared with 9% in the prior year. Americas Beverages marketing spend at 7% of revenues was 3% higher at constant exchange rates.
Restructuring costs
The Vision into Action programme
In mid-2007, the Group announced that part of its confectionery strategy is to achieve mid-teen margins by 2011. In pursuit of this goal the Group implemented a major group-wide cost reduction programme to significantly reduce the central and regional SG&A and supply chain costs. This will result in a 15% reduction in the Group’s global headcount and manufacturing footprint by 2011.
The Fuel for Growth programme
The Group implemented a major cost reduction initiative through 2003-07 with the aim of cutting direct and indirect costs by £360 million per annum by 2007. It was expected that the investment required to deliver the £360 million of cost savings would be £800 million, split between £500 million of restructuring and £300 million of capital expenditure. The 2006 Fuel for Growth restructuring spend of £123 million took the cumulative restructuring spend to around £500 million (at constant exchange rates) and completed the cost phase of the programme.
Costs in respect of business restructuring were £200 million compared with £133 million last year. In 2007, the restructuring principally related to the Vision into Action programme for the Confectionery business. In addition amounts were recognised relating to a third party supply agreement which has become an onerous contract, costs incurred to separate and establish a stand alone confectionery business, a headcount reduction programme in Americas Beverages and the integration of CSBG. In 2006, the business restructuring related to the continued execution of the Fuel for Growth cost reduction initiative and the integration of CSBG.
                 
    2007     2006  
    £m     £m  
 
Vision into Action
    151        
 
Fuel for Growth projects in the base business
          123  
 
Onerous contract — Gumlink
    9        
 
Separation costs
    5        
 
Americas Beverages headcount reduction
    26        
 
CSBG integration
    9       10  
 
Restructuring costs
    200       133  
 
Of this total charge of £200 million, £107 million was redundancy related, £23 million related to external consulting costs, £24 million was associated with onerous contracts and £13 million related to employee profit sharing termination costs. The remaining costs consisted of asset write-offs, site closure costs, relocation costs and contract termination costs.
Business segment analysis
More detailed information on the restructuring activities in each business segment is provided in the business segments performance section from pages 36 to 39. The table below details the business segment analysis of restructuring costs.
                 
    2007     2006  
Business segment analysis   £m     £m  
 
BIMA
    60       51  
 
Europe
    18       14  
 
Americas Confectionery
    33       11  
 
Asia Pacific
    8       15  
 
Central
    46       21  
 
Americas Beverages
    35       21  
 
Restructuring costs
    200       133  
 

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Amortisation and impairment of acquisition intangibles
Amortisation and impairment of acquisition intangibles (included within trading costs) of £42 million was £4 million higher than in 2006. The increase principally relates to the inclusion of a full year’s charge from the definite life brands and customer relationships acquired with CSBG. Also included is the impairment of the goodwill relating to China (£13 million) recognised in the year. In 2006, an impairment of the goodwill relating to Cadbury Nigeria (£15 million) was recognised.
Non-trading items
During 2007, the Group recorded a net loss from non-trading items of £38 million compared to a profit of £40 million in 2006. The main items within non-trading items were:
>   £38 million accounting gain on the rebuild of a factory in our Monkhill UK confectionery business from insurance proceeds. This was offset by the writing down to recoverable value of the Monkhill business (£41 million) which is held for sale at 31 December 2007;
 
>   £40 million of costs incurred to separate the Americas Beverages business;
 
>   £12 million write down to value in use of property, plant and equipment in China; and
 
>   £20 million profit on disposal of Cottees, a jams, jellies and toppings business in Australia.
IAS 39 adjustment
Fair value accounting under IAS 39 resulted in a charge of £13 million (2006: £3 million charge). This principally reflects the fact that in 2007 spot commodity prices and exchange rates were higher than the rates implicit in the Group’s hedging arrangements.
(iii) Share of result in associates
In 2007, our share of the result of our associate businesses was a profit of £8 million. This compares to a loss in 2006 of £16 million. Included in the 2006 loss was a £23 million charge representing our share of the accounting adjustments required to write-down overstated assets and recognise previously unrecognised liabilities following the discovery of the significant overstatement of results in Cadbury Nigeria over a number of years.
(iv) Financing
The net financing charge at £126 million was £29 million lower than the prior year. After allowing for the £17 million impact of the IAS 39 adjustment to present financial instruments at fair value, the net financing charge was £143 million or £6 million lower than in 2006. The reduced interest cost is driven by an overall decrease in average net debt over the year and a £4 million increase in the IAS 19 pension credit arising due to increased asset returns in excess of an increased cost from unwinding the discount on liabilities.
Although profit from operations has reduced in 2007 it was more than offset by a reduced interest charge which has resulted in the Group’s interest cover increasing to 5.1 times in 2007 from 5.0 times in 2006.
(v) Taxation
Profit before tax fell by 9% to £670 million reflecting increased restructuring costs, non-trading items, the costs of separation and the decreased trading result partially offset by the gain on the termination of Glacéau contract.
The tax rate in 2007 was 39.2% compared with 29.1% in 2006. The increase is primarily due to non-deductible restructuring and the continued increased exposure to higher rate tax jurisdictions, in particular the US.
(vi) Discontinued operations: Europe and South Africa Beverages
There is no result from discontinued operations in 2007.
In 2006, discontinued operations of £642 million included an insignificant contribution arising on the trading in the pre-disposal period and a net profit on disposal of our beverage businesses in Europe and South Africa of £591 million. In addition, a £51 million write-back of total tax provisions was recorded following agreement with the UK tax authorities in respect of the disposal in 1997 of Coca-Cola & Schweppes Beverages, a UK bottling business and the disposal in 1999 of the Group’s beverage brands in 160 countries.
(vii) Minority interests
In 2007, the Group companies in which we do not own 100% contributed an aggregate profit to the Group. The minority interests share of these profits was £2 million. The change from 2006, where the minority interests share was a loss of £4 million, is due to the losses incurred by Cadbury Nigeria in 2006.
(viii) Dividends
The Board has proposed a final dividend of 10.5 pence, up from 9.9 pence in 2006, an increase of 6%. Including the interim dividend of 5.0 pence, the total dividend for 2007 is 15.5 pence, an 11% increase on the 14.0 pence dividend in 2006. The dividend cover decreased to 1.25 times from 4.0 times in 2006 reflecting the reduced earnings and increased dividend. Further dividend information for shareowners is given in shareowner information on page 148.
(ix) Earnings per share
Earnings per share from continuing and discontinued operations fell to 19.4 pence from 56.4 pence in 2006 principally reflecting the profit on disposal of our Europe and South African beverage business that was recognised in 2006. The base business grew earnings per share by 2.1 pence which was offset by movements in exchange rates reducing earnings per share by 1.5 pence. The impact of acquisitions and disposals, other than the profit on disposal of Europe Beverages, decreased earnings per share by 0.7 pence, the increase in the tax rate decreased earnings per share by 3.2 pence and the increase in the average number of shares also decreased earnings per share by 0.2 pence.
(x) Effect of exchange rates and inflation on 2007 reported results
Over 80% of the Group’s revenues and profits in 2007 were generated outside the United Kingdom. The Group’s reported results have been affected by changes in the exchange rates used to translate the results of non-UK operations. In 2007 compared with 2006, the largest exchange rate impact on the Group’s results was the weakening in the US Dollar, the Mexican Peso and South African Rand.
In 2007, movements in exchange rates decreased the Group’s revenue by 4%, pre-tax profit by 7% and earnings per share by 3%.
General price inflation in countries where the Group has its most significant operations remained at a low level throughout the year and in general terms was within the 1% to 4% range. In certain developing markets, notably Venezuela, Turkey, Brazil, Russia, Nigeria and Argentina, the rate of inflation was significantly higher than this range, but the impact was not material to the Group results.

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2. 2007 compared to 2006 — Business Segments Performance
Information used by management to make decisions
Regular monthly management accounts are produced for review by the Chief Executive’s Committee (CEC). These accounts are used by the CEC to make decisions and assess business performance.
The key performance measures, which are monitored on a Group wide and regional basis by the CEC, are:
>   Revenue;
 
>   Underlying profit from operations (before and after Business Improvement Costs);
 
>   Underlying operating margins;
 
>   Working Capital;
 
>   Free Cash Flow (see page 41);
 
>   Net cash from operating activities (a key component of Free Cash Flow); and
 
>   Return on Invested Capital.
Explanation of management performance measures
Included within the above performance metrics are a number of management performance measurements, namely underlying profit from operations, underlying operating margins, Free Cash Flow and Return on Invested Capital.
Underlying earnings measures
A segmental analysis of underlying profit from operations is presented alongside profit from operations on pages F-7 to F-9 of the audited financial statements as well as a segment-by-segment reconciliation from underlying profit from operations to the corresponding IFRS measure which is profit from operations. We calculate underlying profit from operations, which is a non-GAAP measure, by adjusting profit from operations to exclude the effects of the following
>   Restructuring costs;
 
>   Amortisation and impairment of acquisition intangibles;
 
>   Non-trading items;
 
>   IAS 39 adjustment; and
 
>   Certain other items which do not reflect the Group’s trading performance.
 
Underlying operating margins are calculated by dividing underlying profit from operations by revenue and expressing the result as a percentage.
In addition, as permitted under IAS 33 “Earnings per Share”, we present underlying earnings per share, along with a reconciliation to earnings per share in Note 13 to the audited financial statements. We calculate underlying earnings per share, which is a non-GAAP measure, by adjusting basic earnings per share to exclude the effects of the following:
>   Restructuring costs;
 
>   Non-trading items;
 
>   Amortisation and impairment of intangibles;
 
>   IAS 39 adjustment;
 
>   Certain other items which do not reflect the Group’s trading performance; and
 
>   The tax impacts of certain intra-group transfers and of the above.
 
The reconciling items between reported and underlying performance measures are discussed in further detail below.
Restructuring costs
The costs incurred in implementing significant business reorganisation projects, such as our Confectionery Vision into Action programme, the efficiency programme in pursuit of mid-teen margins, the Fuel for Growth programme to reduce direct and indirect costs following the acquisition of Adams in 2003 and integrating acquisitions are classified as restructuring. In addition, the onerous lease which has arisen from the strategic decision to decrease our gum supply from a third party manufacturer, Gumlink A/S, and move production to a new green-field site in Poland, is included as restructuring.
Also included as restructuring are the costs incurred in establishing a stand-alone confectionery company.
We view these costs as costs associated with investments in the future performance of the business and not part of the underlying performance trends of the business. Hence these restructuring costs are separately disclosed in arriving at profit from operations on the face of the income statement.
In 2007, the Group has also incurred costs which are restructuring in nature relating to the maintenance of an efficient business. These costs are termed ‘Business Improvement Costs’ and are included within the underlying results of the business as they are expected to be incurred each year and hence will not distort the performance trends of the business. There were no Business Improvement Costs in 2006 as all restructuring was incurred as part of the Fuel for Growth programme.
Amortisation and impairment of acquisition intangibles
Our performance is driven by the performance of our brands, other acquisition intangibles and goodwill, some of which are internally generated (e.g. the Cadbury brand) and some of which have been acquired (e.g. the Adams brands). Certain of the acquired brands and other acquisition intangibles are assigned a finite life and result in an amortisation charge being recorded in arriving at profit from operations. There are no similar charges associated with our internally generated brands and other intangible assets. In addition, from time to time, the Group may be required to recognise impairments of intangibles and goodwill. No similar charges can occur from our organically grown businesses. We believe that excluding acquisition intangible amortisation and goodwill impairment from our measure of operating performance allows the operating performance of the businesses that were organically grown and those that have resulted from acquisitions to be analysed on a more comparable basis.

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Non-trading items
Our trade is the marketing, production and distribution of branded confectionery and beverage products. As part of our operations we may dispose of subsidiaries, associates, brands, investments and significant fixed assets that do not meet the requirements to be separately disclosed outside of continuing operations. These discrete activities form part of our operating activities and are reported in arriving at profit from operations. However, we do not consider these items to be part of our trading activities. The gains and losses on these discrete items can be significant and can give rise to gains or losses in different reporting periods. Costs incurred from the disposals of operations which will meet the criteria to be disclosed as a discontinued operation are also separately identified due to their significance and discrete nature. Consequently, the non-trading items can have a significant impact on the absolute amount of, and trend in, profit from operations and operating margins and are not included in the underlying performance trends of the business.
IAS 39 adjustment
We seek to apply IAS 39 hedge accounting to hedge relationships (principally under commodity contracts, foreign exchange forward contracts and interest rate swaps) where it is permissible, practical to do so and reduces overall volatility. Due to the nature of our hedging arrangements, in a number of circumstances we are unable to obtain hedge accounting. We continue, however, to enter into these arrangements as they provide certainty of price and delivery for the commodities we purchase, the exchange rates applying to the foreign currency transactions we enter into and the interest rates that apply to our debt. These arrangements result in fixed and determined cash flows. We believe that these arrangements remain effective economic and commercial hedges.
The effect of not applying hedge accounting under IAS 39 means that the reported results reflect the actual rate of exchange and commodity price ruling on the date of a transaction regardless of the cash flow paid at the predetermined interest rate, rate of exchange or commodity price. In addition, the movement in the fair value of open contracts in the period is recognised in the financing charge for the period. Whilst the impacts described above could be highly volatile depending on movements in exchange rates, interest rates or commodity prices, this volatility will not be reflected in our cash flows, which will be based on the fixed or hedged rate. The volatility introduced as a result of hedge accounting under IAS 39 has been excluded from our underlying performance measures to reflect the cash flows that occur under the Group’s hedging arrangements.
Certain other items which do not reflect the Group’s trading performance
From time to time events occur which due to their size or nature are considered separately when discussing the trading performance of the Group. The gains and losses on these discrete items can have a material impact on the absolute amount of, and trend in, the profit from operations and results for the year. Therefore any gains and losses on such items are analysed outside the underlying results to enable the trends in the underlying performance of the business to be understood. Where items are excluded from the underlying results we provide additional information on these items to enable a full understanding of the events and their financial impact.
>   Gain on contract termination – in 2007, the Group received £45 million amounts in respect of the termination in November of a distribution agreement for Glacéau in the US. The net gain of £31 million which would otherwise have been received through distribution of the product in 2008 is considered to be one-off and excluded from the underlying results.
 
>   UK product recall – in 2006, the incremental direct costs (net of directly attributable insurance recoveries) incurred in recalling seven Cadbury branded product lines in the UK and two in Ireland have been excluded from the underlying results of the Group. The impact on trading following the recall is included in underlying results.
 
>   Nigeria – in 2006, the Group’s share of Cadbury Nigeria’s adjustments to reverse the historical over-statement of financial results has been excluded from the underlying equity accounted share of result in associates on the grounds that these adjustments had accumulated over a period of years and were a consequence of deliberate financial irregularities. The charge is not considered to represent the underlying trading performance of the business.
 
>   Release of disposal tax provisions – in 2006, we reached agreement with the UK tax authorities as to the tax due in connection with the disposal in 1997 of Coca-Cola & Schweppes Beverages, a UK bottling business, and the disposal in 1999 of the Group’s beverage brands in 160 countries. This has resulted in the release of unutilised provisions totalling £51 million within discontinued operations. The original disposal gains, net of tax, were treated as discontinued operations and excluded from the underlying results in the relevant years. Consistent with the original treatment, the release of the unutilised provisions has been excluded from the underlying earnings of the Group.
 
>   Recognition of UK deferred tax asset — in 2005, we recognised a deferred tax asset in the UK for the first time, which resulted in a £104 million credit to the 2005 taxation charge. As a consequence of its size and one-off nature, this amount has been excluded from the underlying results.
In order to provide comparable earnings information the tax impact (where applicable) of the above items is also excluded in arriving at underlying earnings. In addition, from time to time the Group may undertake reorganisations in preparation for a disposal or make intra-group transfers of the legal ownership of brands and other intangible assets. These transfers may give rise to tax gains or losses which are excluded from the underlying results.
For the reasons stated above, underlying profit from operations, underlying operating margins and underlying earnings per share are used by the Group for internal performance analysis. They are the primary information seen and used in any decision making process by the CEC. The Group also uses underlying profit as a key component of its primary incentive compensation plans including the Annual Incentive Plan, the bonus scheme for all employees of the Group.
Underlying profit from operations, underlying operating margins and underlying earnings per share exclude certain costs, some of which affect the cash generation of the Group. Assessing and managing our performance on these measures alone might result in the concentration of greater effort on the control of those costs that are included in the underlying performance measures. In order to mitigate this risk, we also manage the business for cash flow and report this externally. The costs of restructuring projects are deducted in arriving at the cash flow measures we use and hence the careful monitoring of these costs is ensured.
The CEC does not primarily review or analyse financial information on a GAAP basis for profit from operations, operating margins or earnings per share. The CEC bases its performance analysis, decision making and employee incentive programmes based on underlying profit from operations, underlying earnings and underlying earnings per share. For these reasons, and the other reasons noted above, we believe that these measures provide additional information on our underlying performance trends to investors, prospective investors and investment analysts that should be provided alongside the equivalent GAAP measures.

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Britain, Ireland, Middle East and Africa (BIMA)
                                                 
                            Business              
            Base     Acquisitions/     improvement     Exchange        
Full year results (£m)   2006     business     Disposals     costs1     effects     2007  
 
Revenue
    1,500       95       11             (27 )     1,579  
 
year-on-year change
            + 6.3 %     +0.8 %           -1.8 %     +5.3 %
 
Underlying profit from operations
    186       (9 )     (1 )     (3 )     (4 )     169  
 
year-on-year change
            -4.8 %     -0.5 %     -1.6 %     -2.2 %     -9.1 %
 
Underlying operating margins
    12.4 %                             10.7 %
 
1   Ongoing business improvement costs charged to underlying profit from operations in 2007 were £3 million. There were no ongoing business improvement costs in the comparable period in 2006 as all costs were incurred as part of the Fuel for Growth programme which was included as restructuring costs outside underlying.
In Britain, Ireland, the Middle East and Africa (BIMA), underlying base business revenue growth of 6% reflects buoyant confectionery category growth in Britain and strong growth in our emerging market operations in Africa and the Middle East. Acquisitions made in 2006 (mainly Cadbury Nigeria and Dandy Products in South Africa) contributed an additional £11 million or 1% to revenues.
Our business in Britain grew revenues by 5%, broadly in line with the overall confectionery market which benefited from a good recovery in chocolate following our product recall, a hot summer in the UK in 2006 and a 16% growth in the gum market following our launch of Trident early in the year. Our overall market share performance strengthened in the second half despite the adverse impact of flooding at our Sheffield factory on candy revenues. In chocolate, revenues in the second half benefited from the successful relaunch of Wispa and our new advertising campaign for Cadbury Dairy Milk. Our gum business secured a 10% share of the UK gum market in its first year, and accounted for the majority of the growth in the gum market during the year.
Revenues in emerging market operations grew by 15%. In South Africa, we had a good year as a result of strong growth in gum and affordable chocolate count-lines. In Nigeria, the business made solid progress after a difficult 2006 and was stabilised with revenues ahead and operating losses reduced.
Base business margins (before the impact of business improvement costs) were lower year-on-year, mainly as the result of a significant increase in marketing investment in the UK behind media advertising for our core Cadbury Dairy Milk brand, the launch of gum which diluted margins by over 150 bps and higher milk costs.
Outside underlying profit from operations were restructuring costs of £60 million. These costs include the redundancy costs incurred as part of the SG&A headcount reduction, the recognition of a provision relating to the announced redundancies which will be incurred on the closure of our Somerdale factory in the UK and an onerous contract and asset write-offs which arise due to the relocation of the UK regional headquarters. Non-trading items included an accounting gain of £38 million arising from a factory insurance recovery following a fire in 2005 at our Monkhill confectionery business in the UK offset by the writing down to recoverable value of £41 million of the Monkhill assets which are held for sale at 31 December 2007.
Also recognised outside the underlying result of the region is a charge of £9 million relating to the IAS 39 adjustment to reflect the actual rate ruling on the date of certain commodity transactions. The underlying results of the region reflect the hedged cash flows that were paid.
Europe
                                                 
                            Business              
            Base     Acquisitions/     improvement     Exchange        
Full year results (£m)   2006     business     Disposals     costs1     effects     2007  
 
Revenue
    818       56                   5       879  
 
year-on-year change
            +6.8 %                 + 0.7 %     +7.5 %
 
Underlying profit from operations
    90       10       (4 )     (5 )           91  
 
year-on-year change
            +11.1 %     -4.4 %     -5.6 %           +1.1 %
 
Underlying operating margins
    11.0 %                               10.4 %
 
1   Ongoing business improvement costs charged to underlying profit from operations in 2007 were £5 million. There were no ongoing business improvement costs in the comparable period in 2006 as all costs were incurred as part of the Fuel for Growth programme which was included as restructuring costs outside underlying.
Our Europe region had an excellent year with base business revenues up nearly 7%. The impact of acquisitions (Intergum and Kandia) and disposals (Adams Italia) was neutral. The growth in revenues was driven by strong performances across the region particularly in gum where revenues were up by 11%. Developed market revenues grew by 5% and emerging markets by 11%.

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Gum revenues benefited from the continued co-ordinated roll-out of key global product and packaging technologies and by strong market-place execution. Centre-filled gum was launched in Russia, Turkey, Spain and Portugal under the Dirol and Trident brands; longer-lasting gum was launched in France and Greece under the Hollywood and Trident brands respectively.
In France, revenues grew modestly reflecting planned rationalisation of our candy portfolio which was more than offset by continued strong growth in gum and the launch of Halls. Our businesses in northern Europe had a very good year with share gains in many markets. In southern Europe, we had an excellent year in Spain, with a further increase in our gum share to 46% following the launch of Trident Splash.
In our emerging market operations, revenues in Russia were ahead by over 20% due to strong market growth and share gains in gum. In Turkey, our business benefited from good market growth and the expansion into chocolate gifting products for the important Bayram religious festivals and the launch of Trident Splash.
The recent acquisitions of Intergum in Turkey and Kandia in Romania are being integrated into the region and performance was satisfactory. Intergum made a modest loss in the year reflecting planned de-stocking of the trade while Kandia made a small profit. Overall acquisitions diluted the region margin by 40bps. Before the impact of acquisitions and business improvement costs, margins in the region were ahead.
Outside underlying profit from operations the region incurred £18 million of restructuring costs relating to the penalties incurred and recognition of an onerous contract with a third party gum supplier and consulting costs incurred as part of setting up a new regional headquarters in Switzerland.
Americas Confectionery
                                                 
                            Business              
            Base     Acquisitions/     improvement     Exchange        
Full year results (£m)   2006     business     Disposals     costs1     effects     2007  
 
Revenue
    1,330       150       (26 )           (82 )     1,372  
 
year-on-year change
            +11.3 %     -2.0 %           -6.1 %     + 3.2 %
 
Underlying profit from operations
    207       65       (3 )     (4 )     (17 )     248  
 
year-on-year change
            +31.4 %     -1.4 %     -1.9 %     -8.3 %     + 19.8 %
 
Underlying operating margins
    15.6 %                             18.1 %
 
1   Ongoing business improvement costs charged to underlying profit from operations in 2007 were £4 million. There were no ongoing business improvement costs in the comparable period in 2006 as all costs were incurred as part of the Fuel for Growth programme which was included as restructuring costs outside underlying.
Our Americas Confectionery region had an outstanding year with strong growth in revenues and margins. Base business revenue growth was 11% with double-digit growth in nearly every market. Revenues grew by 9% in our developed markets in North America and by 15% in our emerging markets in Latin America. This continued strong momentum was driven by gum category growth, share gains and new product launches, notably the roll-out of centre-filled gum into Latin America. The disposal of Allan Candy in Canada, reduced revenues by £26 million or 2%.
In the US, the gum market grew by 9%, benefiting from the combination of price rises and innovation. Our gum share rose by 310 bps in the year despite an increase in competitive activity. This share gain was due to strong growth in our Trident and Stride brands with Stride’s share of the gum market rising from 3.0% to 6.3% during the course of the year. Although the cough category grew 4%, Halls lost 70 bps of share and revenues in the US were modestly lower year-on-year as a result.
In Canada, base business revenues were 3% ahead, with growth in our core brands partly offset by the rationalisation of non-core brands and SKUs. Margins continued to benefit from the focus on our advantaged core brands. The Stride gum brand was launched in Canada at the end of the year.
Performance was strong across all our businesses in Latin America including in Mexico where revenues were ahead by 12% as a result of continued investments in extending our route to market and the launch of Trident Splash centre-filled gum. In a market which grew by 13%, our share of the Mexican gum market rose by 100bps, reaching 80% at the end of the year. Elsewhere in Latin America, revenues grew strongly in Argentina, Brazil and Venezuela due to the combination of pricing, route to market investments, growth in core brands (Trident, Halls and Beldent) and innovation. Trident centre-filled gum was also launched in Brazil, Colombia and Ecuador.
Margins in the region increased significantly during the year, to 18.2% before the impact of exchange. The 280bps increase in base business margins was driven by higher pricing, supply chain savings, positive mix and operational leverage. In the fourth quarter of the year, a major reorganisation of the region was implemented with significant SG&A savings expected to benefit margins in 2008.
Outside underlying profit from operations were restructuring costs of £33 million. These costs reflect a headcount reduction programme to reduce SG&A costs and the one-off costs incurred to terminate an employee profit sharing agreement. Non-trading items contributed a loss of £1 million. This charge represented the finalisation of the loss on disposal of Allan Candy. In addition, amortisation of £2 million relating to a definite life brand was excluded from the underlying result.

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Asia Pacific
                                                 
                            Business              
            Base     Acquisitions/     Improvement     Exchange        
Full year results (£m)   2006     business     Disposals     costs1     effects     2007  
 
Revenue
    1,205       43       (3 )           9       1,254  
 
year-on-year change
            +3.6 %     -0.2 %           +0.7 %     +4.1 %
 
Underlying profit from operations
    165       4       (1 )     (12 )     3       159  
 
year-on-year change
            +2.4 %     -0.6 %     -7.2 %     +1.8 %     -3.6 %
 
Underlying operating margins
    13.7 %                               12.7 %
 
1   Ongoing business improvement costs charged to underlying profit from operations in 2007 were £12 million. There were no ongoing business improvement costs in the comparable period in 2006 as all costs were incurred as part of the Fuel for Growth programme which was included as restructuring costs outside underlying.
Base business revenues in Asia Pacific grew by nearly 4%, with continued double-digit (14%) growth in emerging markets, partly offset by a slower year in developed markets where revenues were 1% ahead. The slower growth in developed markets reflected the combination of our exit from non-core beverage and confectionery contracts and a challenging retail market in Australia. The net impact of acquisitions (Sansei in Japan) and disposals (Cottees Foods in Australia) reduced revenue growth by £3 million.
In developed markets, revenue growth in Australia slowed to 1%. Against a background of a competitive and challenging retail environment, confectionery revenues were modestly lower and beverages revenues were ahead 4%. While the Australian confectionery market grew strongly in the year, the reduction in our confectionery revenues was due to the combination of retailer de-stocking and a reduction in our promotional activity. Elsewhere, New Zealand had a good year with a 170bps increase in share driven by both chocolate and candy. In beverages, our market share rose by 100bps with strong growth in our flavoured carbonate brands and energy drinks benefiting from good consumer demand and our focus on core brands. Excluding the exit from a low-margin co-packing contract, beverage revenues were ahead by 10%. In Japan, we continued to gain share in gum, with our share up 120bps to nearly 20% at the end of the year. Sansei, a functional candy business, is being integrated into our existing business and is performing in line with expectations.
In emerging markets, performance in India was excellent, with revenues growing by over 20%. All our core brands including Cadbury Dairy Milk and Cadbury Eclairs contributed to the growth with results also benefiting from the successful launch of Bubbas branded bubblegum. Performance in South East Asia strengthened into the second half with continued good results from Malaysia where revenues rose by 18%. In China, we completed the refocus on a smaller number of key cities and while revenues were over 20% lower as a result, losses were reduced, in line with expectations.
Underlying margins (before business improvement costs) were modestly lower year-on-year, primarily due to the adverse mix in Australia and higher growth in emerging markets.
Outside underlying profit from operations were restructuring costs of £8 million. These costs were all incurred as part of our Vision into Action programme.
An impairment charge of £13 million relating to goodwill in China, following a change in the Group’s strategy in China, and amortisation of a definite life brand of £2 million were also excluded from the underlying results of the region. Non-trading items include the write down to value in use of property, plant and equipment of £12 million in China offset by the profit of £20 million from the disposal of Cottees, a jams, toppings and jellies business in Australia, is also excluded from the underlying results of the region.
Central
Central is included within Confectionery as the activities principally relate to the Confectionery business.
                                         
            Base     Acquisitions/     Exchange        
Full year results (£m)   2006     business     Disposals     effects     2007  
 
Revenue
    8       1                   9  
 
year-on-year change
            +12.5 %                 +12.5 %
 
Underlying profit from operations
    (159 )     (12 )           1       (170 )
 
year-on-year change
            -7.5 %           +0.6 %     -6.9 %
 
Underlying operating margins
    n/a                               n/a  
 
Central revenue arises on the rendering of research and development services to third parties.
Central costs increased by £11 million, a 7% rise principally as a result of investment in IT and an increase in the share based payment expense.
Outside underlying profit from operations were restructuring costs of £46 million. These costs were all incurred as part of our Vision into Action initiative and primarily relate to the relocation of our Head Office and headcount reduction programme in Group Functions.

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Americas Beverages
2007 Operating Review
                                         
            Base     Acquisitions/              
(£m)   2006     business     Disposals     Exchange     2007  
 
Revenue
    2,566       114       403       (205 )     2,878  
 
year-on-year change
            +4.4 %     +15.7 %     -7.9 %     +12.2 %
 
Underlying profit from operations
    584       5       8       (44 )     553  
 
year-on-year change
            +0.9 %     +1.3 %     -7.5 %     -5.3 %
 
Underlying operating margin
    22.8 %                       19.2 %
 
In Americas Beverages, base business revenues grew by 4%, a good result given the challenging market conditions in our key US CSD market. Acquisitions and disposals contributed a net £403 million or 16% to revenues. The contribution from acquisitions relate to bottling businesses bought during 2006 and 2007, including CSBG and SeaBevs.
Our carbonates revenues in the US grew by 1% and our share of the US CSD market rose by 40 bps, our fourth consecutive year of share gains. These share gains were made despite the fact that the business was cycling a year of significant innovation activity, notably in Dr Pepper and 7 UP, where bottler volumes fell by 2.5% and 3% respectively. Excluding innovations, base Dr Pepper bottler volumes were modestly ahead. Other key flavour brands (Sunkist, A&W and Canada Dry) had a good year with bottler volumes up 3% reflecting the trend away from colas to flavoured CSDs and the greater focus provided by our more integrated route to market.
In non-CSDs in the US, revenues grew by 3%, with performance boosted by the successful launches of Snapple super premium teas and enhanced waters. The Snapple brand grew revenues by 5%. As previously indicated, the national launch of our new sports drink brand Accelerade was disappointing with around a £30 million loss in the year arising from the launch. The decision has been taken to focus on a narrower range of profitable outlets going forward and further losses are not expected to be incurred. Our Mexican business had a more challenging year with results adversely impacted by poor weather and increased competitive activity, however revenues were 4% ahead.
Americas Beverages underlying margins were 340bps lower year-on-year, before the impact of exchange reflecting the strategic acquisitions of bottling businesses and the losses arising from the launch of Accelerade. Commodity costs continued to rise during the year, but these were more than offset through price increases and tight cost control. At the end of the year, a significant cost reduction programme was successfully implemented which is expected to generate full year cost savings of around £35 million in 2008. In November, our contract to manufacture and distribute Glacéau was terminated following Coca-Cola’s acquisition of Energy Brands. In 2007, this contract contributed around £110 million to revenues and around £20 million to underlying profit from operations.
Americas Beverages incurred £35 million of restructuring costs relating to a headcount reduction programme (£26 million) and further integration of CSBG (£9 million). The region also amortised £24 million of definite life intangible assets which arose from the acquisition of CSBG and other bottling operations purchased in 2006 and 2007 which are excluded from the underlying results of the region.
Further items treated outside underlying were the costs incurred to separate the Americas Beverages region from the Cadbury Confectionery business which totalled £40 million and a gain of £31 million which arose from the termination of the contract to distribute Glaceau offset by the write-off of the associated franchise intangible. The amount excluded from the underlying results is the amount which would otherwise have been earned through distribution of the product in 2008.
FUTURE TRENDS
Future revenue and profit from operations may be affected by both external factors and trends that alter the environment in which we carry out our business as well as internal management strategies aimed at improving our business performance.
External and internal factors
A discussion of the external and internal factors that affect our business is contained in Item 3 - titled ‘Risk factors’ on pages 5 to 7.
2008 outlook
In 2007, the Board decided that Confectionery and Americas Beverages would deliver more value to shareowners as independent focused businesses. The businesses will run independently in 2008 as we continue to work towards a demerger in the second quarter subject to the legal and shareowners approvals and debt refinancing.
As we look ahead to 2008, although economic conditions remain uncertain, we take confidence from the fact that we have created strong foundations for the businesses and that they operate in economically resilient categories.
In 2008, Americas Beverages will continue to benefit from the focus on core advantaged brands and superior route to market capability, with revenues expected to grow between 3-5%. We aim to largely cover the expected margin headwinds through pricing and restructuring benefits. However, taking into account the consolidation of lower margin bottling acquisitions, reported margins are likely to be modestly lower year on year, with the profits weighted toward the second half.
In Confectionery, our strong momentum should help us to achieve revenue growth in the upper half of our 4%-6% goal range. Good operating leverage, particularly in gum, the initiatives in place to deliver savings, early progress on a turnaround in our underperforming markets (China, Nigeria and Russia), and a robust approach to pricing should enable us to deliver meaningful confectionery margin progression in 2008.
2008 restructuring guidance
In 2008 we will continue to implement our Vision into Action initiative to achieve mid-teen margins by 2011. In total the initiative is projected to incur £450 million of restructuring costs. In addition, we will significantly reduce our gum supply requirements from Gumlink A/S and hence incur minimum penalties under the terms of the agreement. The costs of integrating acquisitions will continue to be included within restructuring in 2008. In 2008, we expect total restructuring charges of around £130-150 million.
In 2008, the net debt structure of the Group is likely to undergo considerable change following the demerger, with the future capital structure of the Group influencing the average interest rate on net debt.
The 2008 tax rate will be dependent on a number of factors including mix of profits in different jurisdictions. However, we expect the tax rate on trading profits to be lower than that for 2007, reflecting a reduced level of profits in the US after the demerger of Americas Beverages.

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OPERATING REVIEW 2006 COMPARED TO 2005
Group
                                         
            Base                    
            business     Acquisitions/     Exchange        
    2005     growth     Disposals     effects     2006  
Analysis of results   £m     £m     £m     £m     £m  
 
Revenue
    6,432       256       799       (60 )     7,427  
 
Change %
            +4 %     +12 %     -1 %     +15 %
 
Profit from operations
    995       (46 )     (26 )     (14 )     909  
 
Change %
            -5 %     -3 %     -1 %     -9 %
 
Basic EPS — Continuing and Discontinued
    37.3                               56.4  
 
The main features of the financial performance of 2006 were as follows:
>   Revenue growth of 4%, driven by innovation and by emerging markets revenues up 10%
 
>   Confectionery revenues +4%; gum revenues +10%; Trident +23%
 
>   Beverage revenues +4%; 60bps share gain in US carbonates; Dr Pepper +2%
 
>   Increase in restructuring costs of £62 million principally representing the end of the Fuel for Growth expense
 
>   £30 million charge relating to the cost of the UK product recall
 
>   Margins decreased by 3.3% due to increased restructuring costs, UK product recall, trading post acquisition in Cadbury Nigeria and increases in commodity costs and growth investment
 
>   £23 million charge in associates relating to significant over-statement of Cadbury Nigeria’s financial position prior to the acquisition to a subsidiary
 
>   Profit before tax -12%
 
>   Cadbury Schweppes Bottling Group performing in line with acquisition case

(except where stated all movements are at constant exchange rates)

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1 Review of 2006 Group income statement
(i) Revenue
Revenue at £7,427 million was £995 million or 15% higher than 2005 sales of £6,432 million. The net effect of exchange movements during the year was to decrease revenue by £60 million, mainly driven by a weakening in the US Dollar, the Australian Dollar and the South African Rand.
In 2006, acquisitions, net of disposals, resulted in a £799 million increase in revenue relative to the prior year. The most significant acquisitions were Dr Pepper/Seven Up Bottling Group (now named Cadbury Schweppes Bottling Group or CSBG), in which we increased our stake from 45% to 100% in May 2006, and Cadbury Nigeria in which we increased our stake from 46% to just over 50% in February 2006.
Base business revenue grew £256 million or 4% with growth in all four of our continuing business segments.
Innovation and emerging markets continued to be the key drivers of performance. Successful innovations during the year included:
>   The launch of Stride, a new gum brand using patented long-lasting flavour technology: At 31 December 2006, Stride had a 2.9% share of the $3.6 billion US gum market
 
>   The further roll-out of our centre-filled gum technology in Europe under a range of local brands such as Trident, Hollywood, Stimorol and Dirol: annualised sales of centre-filled gum in the US and Europe were over £100 million at the end of 2006
 
>   The launch of new premium chocolate products in the UK and Australia through the Cadbury and Green & Black’s brands
 
>   The launch of a range of super-premium Snapple teas giving us a strong position in this fast-growing functional beverage category
 
>   The relaunch of 7 UP as 7 UP Natural in the US
Our emerging markets grew revenues by 10% with key successes including:
>   10% growth in candy following the launch of affordable offers in Africa, Asia and Latin America
 
>   12% growth in Latin America, driven by growth in all top 5 markets
 
>   17% growth in Asia Pacific, with strong performances in India and South East Asia
Confectionery revenues grew by 4% with the impact of the difficult trading in the UK reducing growth by 2%. Performance was stronger in the second half with an increase in the rate of innovation, particularly in Americas Confectionery. Emerging markets continued to grow strongly across all geographies at 10%.
In gum all regions contributed to a 10% revenue growth. We continued to see strong share gains in the US with Stride, our new longer lasting gum brand, ahead of its launch plan. In Europe, the roll-out of centre-filled gum and strong growth in Southern Europe benefited performance. In Asia, we are seeing strong growth in sugar-free gum.
Chocolate had a more difficult year given the impact of the product recall in the UK with revenues up 1%. Outside the UK, growth remained healthy at 5%. In Asia Pacific, the growth was driven by premium and indulgent products in Australia and New Zealand, and by the launch of gifting and affordable chocolate offers in India.
Candy grew strongly in emerging markets at 10%, benefiting from our focus on affordable offers. However, performance in developed markets was impacted by weaker results from Halls in the US, due to lower demand during the cough and cold season, and from non-core brands. Overall candy revenues were flat.
Our beverage operations had another good year with like-for-like revenues ahead by 4%. Americas Beverages outperformed the US carbonated soft drinks market for the third year in a row, with like-for-like CSD revenue growth of 3%.
Despite flat Snapple revenues, total US non-carbonates revenues were ahead by 2%, with the core four brands (Snapple, Hawaiian Punch, Mott’s and Clamato) ahead by 3%. Snapple’s performance improved in the second half mainly due to the launch of Snapple super-premium teas.
Beverages in Australia and Mexico also performed well with revenue growth of 6% and 11% respectively.
(ii) Profit from operations
Profit from operations decreased £86 million (9%) to £909 million compared to 2005. This was driven by:
>   an increase in restructuring costs of £62 million;
 
>   an increase of £32 million in amortisation and impairment of intangible assets, due to the additional amortisation charge from definite life CSBG customer relationships and contracts and the impairment of £15m goodwill relating to the Group’s investment in Cadbury Nigeria;
 
>   a decrease of £25 million in the IAS 39 adjustment; and
 
>   a £30 million charge arising from the UK product recall.
This was partially offset by the improved trading performance.

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Currency movements had a £14 million (1%) unfavourable impact on profit from operations. The full-year impact of acquisitions, net of disposals, had a £26 million adverse impact primarily due to CSBG and Cadbury Nigeria.
Operating margin fell by 330 basis points to 12.2%. Excluding the impact of exchange, operating margin fell by 320 basis points. Excluding the impact of acquisitions and disposals (principally CSBG and Cadbury Nigeria) and exchange differences margins were 14.2%.
Marketing
Marketing spend was £693 million in 2006, a 2% increase at actual exchange rates and a 3% increase at constant exchange rates. Marketing spend as a percentage of revenues was 9% compared with 11% in the prior year. Confectionery marketing rose 4% in line with revenue growth. All of the reduction is attributable to the beverage business and primarily reflects the acquisition of CSBG which has a lower marketing to revenue ratio than the Group. In addition, following the acquisition of CSBG, we changed some of our marketing approach which resulted in some spend previously categorised as marketing spend becoming promotional spend (and deducted from revenue) as we are now managing the total route to market.
Restructuring costs
Costs in respect of business restructuring were £133 million compared with £71 million last year. In 2006, the business restructuring related to the continued execution of the Fuel for Growth cost reduction initiative and the integration of CSBG.
                 
    2006     2005  
    £m     £m  
 
Integrating Adams
          16  
Other Fuel for Growth projects in the base business
    123       55  
 
Total Fuel for Growth
    123       71  
CSBG integration
    10        
 
Restructuring costs
    133       71  
 
Of this total charge of £133 million, £70 million was redundancy related and £21 million related to external consulting costs. The remaining costs consisted of asset write-offs, site closure costs, relocation costs and contract termination costs.

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Business segment analysis
More detailed information on the restructuring activities in each business segment is provided in the business segments performance section from pages 40 to 42. The table below details the business segment analysis of restructuring costs.
                 
    2006     2005  
Business segment analysis   £m     £m  
 
BIMA
    51       11  
 
Europe
    14       10  
 
Americas Confectionery
    11       21  
 
Asia Pacific
    15       15  
 
Central
    21       8  
 
Americas Beverages
    21       6  
 
Restructuring costs
    133       71  
 
The total Fuel for Growth restructuring spend from 2003 to 2006 amounted to £506 million, slightly above the total expected Fuel for Growth restructuring spend of £500 million.
Amortisation and impairment of acquisition intangibles
Amortisation and impairment of acquisition intangibles at £38 million was £32 million higher than in 2005. This increase reflects the impairment of £15 million of goodwill relating to the Group’s investment in Cadbury Nigeria and the amortisation charge of £16 million arising on the definite life intangibles (brands and customer relationships) acquired with CSBG.
Non-trading items
During 2006, the Group recorded a net profit from non-trading items of £40 million compared to a profit of £25 million in 2005. The main items within non-trading items were:
>   Profit of £17 million on the sale and leaseback of a UK distribution centre;
 
>   Gain of £25 million arising from a factory insurance recovery following a fire in 2005 at our Monkhill confectionery business in the UK; and
 
>   Profits on disposal of £17 million relating to two non-core beverage brands in the US: Grandmas Molasses and Slush Puppie, which were offset by write-downs to recoverable amount on other non-core businesses classified as held for sale.
IAS 39 adjustment
Fair value accounting under IAS 39 resulted in a charge of £3 million. This principally reflects the fact that in 2006 spot commodity prices and exchange rates were higher than the rates implicit in the Group’s hedging arrangements.
(iii) Share of result in associates
In 2006, our share of the result of our associate businesses (net of interest and tax) was a loss of £16 million. This compares to a profit in 2005 of £28 million. Included in the current year loss is a £23 million charge representing our share of the accounting adjustments required to write-down overstated assets and recognise previously unrecognised liabilities following the discovery of the significant overstatement of results in Cadbury Nigeria over a number of years. Excluding this Cadbury Nigeria write-down, the share of associates’ profits has fallen by £21 million, principally reflecting the reclassification of CSBG and Cadbury Nigeria to subsidiaries.
(iv) Financing
The net financing charge at £155 million was £33 million lower than the prior year. The reduction in the charge reflects the impact of:
>   The overall reduction in net debt following acquisitions and disposals made during the year, principally the disposal of Europe Beverages and the acquisition of CSBG;
 
>   A reduction in average net debt arising from positive operating cash flows;
 
>   A £14 million increase in the IAS 19 pension credit arising primarily from increased asset returns; offset by
 
>   A £6 million increase in the IAS 39 charge and
 
>   A marginal increase in the net interest rate to 5.1%.
The reduced profit from operations (partially offset by a reduced interest charge) resulted in the Group’s interest cover falling to 5.0 times from 5.7 times in 2005.
(v) Taxation
Profit before tax from continuing operations fell by 12% to £738 million and by 10% at constant exchange rates million reflecting increased restructuring costs, amortisation and impairment of intangibles, UK product recall and adverse movement on the IAS 39 adjustment partially offset by the increased trading result. The continuing operations tax rate in 2006 was 29.1% as against 16.2% in 2005 giving a tax charge of £215 million in 2006 compared to £135 million in 2005. The increase in the tax rate reflects the absence of the initial recognition of deferred tax asset in the UK which was recognised in 2005 and an increased exposure of our tax charge to higher rate tax jurisdictions, in particular the US.
(vi)   Discontinued operations: Europe and South Africa Beverages
 
    Discontinued operations at £642 million included an insignificant contribution arising on the trading in the pre-disposal period and a net profit on disposal of our beverage businesses in Europe, South Africa and Syria of £591 million. In addition, a £51 million write-back of total tax provisions has been recorded following agreement with the UK tax authorities in respect of the disposal in 1997 of Coca-Cola & Schweppes Beverages, a UK bottling business and the disposal in 1999 of the Group’s beverage brands in 160 countries.

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(vii) Minority interests
In 2006, the Group companies in which we do not own 100% contributed an aggregate loss to the Group. The minority interests share of these losses was £4 million, £15 million lower than the net profits attributable to minority interests in 2005. The movement was due to recognition of the minority interest share of the losses incurred by Cadbury Nigeria after our ownership interest increased to just over 50% and the reduction in the minority interests share in the profits of Kent, our Turkish confectionery business, following our purchase of a further 30% stake in the business.
(viii) Dividends
The Board has proposed a final dividend of 9.90 pence, up from 9.00 pence in 2005, an increase of 10%. Including the interim dividend of 4.10 pence, the total dividend for 2006 is 14.00 pence, an 8% increase on the 13.00 pence dividend in 2005. The dividend cover increased to 4.0 times from 2.9 times in 2005 reflecting the profit on disposal of Europe Beverages and increased continuing group earnings, offset by an increased dividend.
(ix) Earnings per share
Basic reported earnings per share rose by 51.1% to 56.4 pence principally reflecting the profit on disposal of the Europe Beverage business.
(x) Effect of exchange rates and inflation on 2006 reported results
Over 80% of the Group’s revenues and profits in 2006 were generated outside the United Kingdom. The Group’s reported results have been affected by changes in the exchange rates used to translate the results of non-UK operations. In 2006 compared with 2005, the largest exchange rate impact on the Group’s results was the weakening in the US Dollar, the Australian Dollar and South African Rand.
In 2006, movements in exchange rates decreased the Group’s revenue by 1%, pre-tax profit by 2% and earnings per share by 2%. The impact on profit from operations was consistent with the impact on revenues.
General price inflation in countries where the Group has its most significant operations remained at a low level throughout the year and in general terms was within the 1% to 4% range. In certain developing markets, notably Venezuela, Turkey, Brazil, Russia, Nigeria and Argentina, the rate of inflation was significantly higher than this range, but the impact was not material to the Group results.
2. 2006 compared to 2005 — Business segments performance
For an explanation of the underlying measures which are used by management to make decisions see pages 26 and 27.

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Britain, Ireland, Middle East and Africa (BIMA)
                                         
            Base     Acquisitions/     Exchange        
Full year results (£m)   2005     business     Disposals     effects     2006  
 
Revenue
    1,420       22       72       (14 )     1,500  
 
 
            +2 %     +5 %     -1 %     +6 %
 
Underlying profit from operations
    217       (18 )     (11 )     (2 )     186  
 
 
            -8 %     -5 %     -1 %     -14 %
 
Underlying operating margins
    15.3 %                             12.4 %
 
 
                               
The results of BIMA in 2006 were impacted by:
>   Lower revenue growth, reflecting the difficult year in the UK
 
>   Margin reduction due to challenging trading in UK and investment behind growth
 
>   Strong emerging market growth of 9% in Africa and the Middle East
In Britain, Ireland, Middle East and Africa (“BIMA”), like-for-like revenues were only modestly ahead as a result of significant challenges in a number of markets. Profits were materially lower driven by declines in the base business and losses from Cadbury Nigeria where we moved to majority ownership. The profit reduction in the base business was due to difficult trading in the UK and by a significant increase in investment, particularly in the second half. We estimate that the product recall in the UK reduced revenues and underlying profit from operations by £30-£35 million and £5-£10 million respectively. The profit impact was reduced by an insurance recovery.
In the UK, despite the poor third quarter which was impacted by the combination of the hot summer and the product recall, the confectionery market was broadly flat year-on-year. We maintained our share of the total market at 31% and our chocolate share at 34%. Our business benefited from the combination of strong performance in seasonal products, particularly at Easter, and increased innovation and marketing activity in the fourth quarter.
Our emerging market business in Africa and the Middle East grew by 9%. This was driven by South Africa where increased investment behind the expansion of our affordable confectionery offers across our entire confectionery range resulted in strong growth in chocolate, candy and gum.
Outside underlying profit from operations were restructuring costs of £51 million. These costs include the rationalisation of our Irish production facilities (£29 million) and the reorganisation of the UK distribution facilities (£9 million). In addition, an impairment charge of £15 million relating to the goodwill held in respect of Cadbury Nigeria and £30 million charge relating to the UK product recall were recorded. Non-trading items contributed a gain of £38 million primarily related to a profit of £17 million on disposal of a UK distribution centre and an accounting gain of £25 million arising from a factory insurance recovery following a fire in 2005 at our Monkhill confectionery business in the UK.

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Europe
                                         
            Base     Acquisitions/     Exchange        
Full year results (£m)   2005     business     disposals     effects     2006  
 
Revenue
    837       (3 )     (11 )     (5 )     818  
 
 
                -1 %     -1 %     -2 %
 
Underlying profit from operations
    111       (19 )           (2 )     90  
 
 
            -17 %           -2 %     -19 %
 
Underlying operating margin
    13.3 %                             11.0 %
 
The results of Europe in 2006 were impacted by:
>   Revenue growth in Spain and Greece offset by a difficult year in France and Russia
 
>   Underlying profit from operations decreased due to continued investment behind centre-filled gum
In Europe, like-for-like revenues were broadly flat year on year due to the growth seen in Spain and Greece being offset by a difficult year in France and Russia.
Underlying profit from operations decreased by 19% due to the difficult year in France and Russia and the continued investment behind centre-filled gum, which was launched in Denmark, Norway, Netherlands, Portugal and Spain.
Outside underlying profit from operations were restructuring cost of £14 million, relating to the creation of an integrated lberia business, the restructuring of our Italian business and the transition of our Turkish business from a formerly family owned business.
Americas Confectionery
                                         
            Base     Acquisitions/     Exchange        
Full year results (£m)   2005     business     Disposals     effects     2006  
 
Revenue
    1,228       92             10       1,330  
 
 
            +7 %           +1 %     +8 %
 
Underlying profit from operations
    172       34             1       207  
 
 
            +20 %                 +20 %
 
Underlying operating margins
    14.0 %                             15.6 %
 
The results of Americas Confectionery in 2006 were impacted by:
>   Revenue growth of 7%, driven by gum growth
 
>   Margin growth of 160bps following further improvements in Canada and Brazil
 
>   Emerging markets growth with revenue growth of 12%
Americas Confectionery had another excellent year with good results in nearly all its key markets. Further improvements in profitability in Canada and Brazil benefited margins, which were 160 basis points ahead.
Gum revenue growth was strong, notably in the US, where results were outstanding with our share growing 300 basis points in a market which grew by 8%. Flavour, packaging and format innovation on our main Trident brand and the launch of Stride in June were the key drivers of our share gain.
Halls growth in Latin America remained strong as we rolled out low-cost affordable offers through our well-established distribution networks. In the US, while Halls had a slow start as a result of a weak cough and cold season, performance improved in the fourth quarter following increased innovation and marketing support. Overall however, Halls growth was disappointing.
In Canada, profitability continues to benefit from our focus on a smaller, more profitable core range. However, the second half was impacted by significant structural change to the important wholesale trade.
Emerging markets continued to grow strongly up 12%, with an improved second half innovation programme in Mexico boosting performance.
Outside Underlying profit from operations were restructuring costs of £11 million. These costs reflect the completion of the spend on the Fuel for Growth initiative. Non-trading items contributed a loss of £14 million. This charge represented a write-down to recoverable value of the non-core element of our Canadian confectionery business which is classified as held for sale at 31 December 2006 following the announcement of our intention to dispose.
Asia Pacific
                                         
            Base     Acquisitions/     Exchange        
Full year results (£m)   2005     business     Disposals     effects     2006  
 
Revenue
    1,157       84             (36 )     1,205  
 
 
            +7 %           -3 %     +4 %
 
Underlying profit from operations
    157       15             (7 )     165  
 
 
            +10 %           -5 %     +5 %
 
Underlying operating margins
    13.6 %                             13.7 %
 
The results of Asia Pacific in 2006 were impacted by:
>   Strong revenue growth of 7%, driven by emerging market growth of 17%
 
>   Margin improvement despite significant increase in commodity input costs
 
>   Market share gains across the region
Our Asia Pacific region had another good year with strong growth in both developed (+5%) and emerging markets (+17%). Margins were ahead in the year with operational leverage and continued tight cost control more than offsetting significant commodity headwinds.
In Australia, confectionery revenues grew by 5% with successful launches in premium and dark chocolate and continued growth of The Natural Confectionery Company range in candy. In beverages, we grew our share of non-carbonates following the relaunch of Spring Valley. In carbonates, while we lost share, the market grew strongly during the year and revenues were ahead by 5%.
In New Zealand, a 300 bps share gain was driven by strong growth in chocolate and candy. In Japan, although the gum market was soft, we grew our share by over 150 bps following the relaunch of Recaldent and Clorets.
In emerging markets, performance in India was exceptional with revenues ahead by over 20% as we increased innovation and marketing support behind the whole of our chocolate, candy and food beverage range. In South East Asia, our key markets of Thailand, Malaysia and Singapore performed well with strong top-line growth and share gains in each market. In Thailand, our share of gum rose by 300 bps to 61.6% driven by Trident sugar-free. During the year, we entered the Vietnamese market through a third party distribution arrangement.
Outside Underlying profit from operations were restructuring costs of £15 million. These costs were all incurred as part of our Fuel for Growth initiative and primarily related to head count reductions.
Central
                                         
            Base     Acquisitions/     Exchange        
Full year results (£m)   2005     business     Disposals     effects     2006  
 
Revenue
    9       (1 )                 8  
 
 
            -11 %                 -11 %
 
Underlying profit from operations
    (156 )     (3 )                 (159 )
 
 
            -2 %                 -2 %
 
Underlying operating margins
    n/a                               n/a  
 
Central revenue arises on the rendering of research and development services to third parties.
Central costs have remained broadly flat at £159 million.
Outside Underlying profit from operations were restructuring costs of £21 million. These costs were all incurred as part of our Fuel for Growth initiative and primarily relate to the IT transformation project and the outsourcing of shared business services.
Americas Beverages
                                         
            Base     Acquisitions/     Exchange        
Full year results(£m)   2005     business     Disposals     effects     2006  
 
Revenue
    1,781       62       738       (15 )     2,566  
 
 
            +3 %     +42 %     -1 %     +44 %
 
Underlying profit from operations
    524       35       29       (4 )     584  
 
 
            +7 %     +5 %     -1 %     +11 %
 
Underlying operating margins
    29.4 %                             22.8 %
 
- excluding CSBG
    29.4 %                             30.2 %
 
The results of Americas Beverages in 2006 were impacted by:
>   Good revenue growth despite declining volumes in US carbonated soft drinks market
 
>   Profit growth of 7% benefiting from innovation and alignment with bottling operation
>   The integration of CSBG on track
Americas Beverages delivered good revenue and profit growth despite declining volumes in the US carbonated soft drinks market, significant cost headwinds and considerable organisational change as the bottling acquisitions were integrated. Performance benefited both from further successful innovations and from the greater focus and alignment through our newly consolidated bottling operations.
In the US, our share of the carbonated soft drinks market grew by 60 basis points, the third successive year of share increases. Volumes and shares were ahead for nearly all of our key flavour brands — Dr Pepper, Sunkist, A&W and Canada Dry. 7 UP volumes were down for the year as a whole, but ahead 7% in the second half following its reformulation and relaunch as 7 UP Natural. Dr Pepper volumes benefited from continued gains in fountain, particularly for Diet Dr Pepper.
Non-carbonates revenues were up 2%, with the core four brands (Snapple, Mott’s, Hawaiian Punch and Clamato) ahead by 3%. Snapple was flat for the year as a whole with a better second half following the launch of a range of Snapple super-premium teas and improved distribution through CSBG.
Mexico continued to grow at more than 10% per annum although the second half was more difficult as competitive activity became more aggressive.
The integration of Dr Pepper/Seven Up Bottling Group and the other bottler and distribution businesses, now collectively known as Cadbury Schweppes Bottling Group or CSBG, is going well. The financial results for 2006 were in line with the acquisition case and we began to see the strategic benefits of the acquisition in terms of: reduced complexity and costs; aligned brand and channel strategies; and better engagement with and service to our retail partners. The performance of our brands through CSBG improved and growth in franchise brands such as Monster and Glaceau Vitamin Water remained strong.
Outside Underlying profit from operations were restructuring costs of £21 million. These costs reflected Fuel for Growth projects and £10 million charge relating to the integration of CSBG. Profit on non-trading items was £17 million representing the gains made on the disposal of non-core brands Grandma’s Molasses and Slush Puppie. The region also recorded an amortisation charge of £19 million relating primarily to the customer relationships and contracts acquired in the year as part of the CSBG transaction.

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CAPITAL STRUCTURE AND RESOURCES
Capital structure
During 2007, our market capitalisation increased to approximately £13.1 billion. This was driven by a 75 pence increase in the share price during the year to 621 pence at 31 December 2007 (546 pence at 31 December 2006) and the issuance of 14.5 million shares to satisfy employee share awards. Net debt (see table below) increased during the year from £2,909 million at the end of 2006 to £3,219 million at the end of 2007, reflecting exchange rates and the acquisitions of Intergum, Kandia-Excelent and Sansei.
We continue to proactively manage our capital structure to maximise shareowner value, whilst maintaining flexibility to take advantage of opportunities which arise, to grow our business. One element of our strategy is to make targeted, value-enhancing acquisitions. It is intended that these will, where possible, be funded from cash flow and increased borrowings. The availability of suitable acquisitions, at acceptable prices is, however, unpredictable. Accordingly, in order to maintain flexibility to manage the capital structure, the Company has sought, and been given, shareowners approval to buy back shares as and if appropriate. This authority has only been used once, in 1999, when 24 million shares (representing approximately 1% of the Company’s equity) were purchased. Renewal of this authority will be sought at the Annual General Meeting. Additionally, many of the obligations under our share plans described in Note 26 to the financial statements will be satisfied by existing shares purchased in the market by the Cadbury Schweppes Employee Trust (the Employee Trust) rather than by newly issued shares. The Employee Trust purchased £70 million shares during 2007 (£50 million in 2006) and held 17 million (2006: 19 million) shares at the end of 2007, representing approximately 0.8% (2006: 0.9%) of the Company’s issued share capital.
Borrowings
At the end of 2007, the total of gross short-term and long-term borrowings was £3,714 million compared with £3,304 million at the end of 2006. Cash and cash equivalents increased to £493 million at the end of 2007 compared to £269 million at the end of 2006. Net debt increased to £3,219 million at the end of 2007, from £2,909 million at the end of 2006. The increase has been driven primarily by movements in exchange rates and the acquisitions of Intergum, Kandia-Excelent and Sansei. At the end of 2007 £1,120 million of our gross debt was due after one year, however, 22% of the £2,518 million of debt due within one year was supported by undrawn committed facilities of £547 million maturing after more than one year.
Gearing is calculated as follows:
                         
    2007     2006     2005  
    £m     £m     £m  
 
Net debt
    3,219       2,909       3,900  
 
Ordinary shareholders’ fund
    4,162       3,688       3,008  
 
Equity minority interests and overdrafts
    11     8     27
 
    4,173     3,695     3,035
 
Gearing ratio %
    77     79     129
 
 
At the end of 2007, 54% of our net borrowings were either at fixed rates or converted to fixed rates through the use of interest rate swaps. It should be noted, however, that the year end is the low point in our seasonal borrowing cycle. Reduced profit from operations was more than offset by a reduced interest charge which resulted in the Group’s interest cover increasing to 5.1 times from 5.0 times in 2006.
At 31 December 2007 we had undrawn committed borrowing facilities of £1,347 million. This relates to a revolving credit facility of £1 billion which was partially drawn, maturing in 2010 and an additional revolving credit facility of £800 million maturing in 2008 which was undrawn. Interest rates payable on these facilities are LIBOR plus 0.225% to 0.375% and LIBOR plus 0.175% respectively per annum. Both facilities are subject to customary covenants and events of default. In view of our committed facilities, cash and cash equivalents, short-term investments and cash flow from operations, we believe that there are sufficient funds available to meet our anticipated cash flow requirements for the foreseeable future.
Our long-term credit rating remained unchanged during 2007 at BBB.
The Group’s debt is largely denominated in foreign currencies (see Note 27 to the financial statements). Therefore, the Group’s debt will depend on future movements in foreign exchange rates, principally the US Dollar and the Euro.
Details of the currency and interest rate profile of our borrowings are disclosed in Note 27 to the financial statements.
Net debt
References to net debt refer to the total borrowings of our business, including both short-term and long-term bank loans, bonds and finance leases, after offsetting the cash and cash equivalents held by the business and our short-term investments.
The table below reconciles net debt, as we define it, to the corresponding IFRS balance sheet captions.
                         
    2007     2006     2005  
    £m     £m     £m  
 
Short-term investments
    2       126       47  
 
Cash and cash equivalents
    493       269       332  
 
Short-term borrowings and overdrafts
    (2,562 )     (1,439 )     (1,194 )
 
Obligations under finance leases
    (21 )     (22 )     (20 )
 
Borrowings – non current
    (1,120 )     (1,810 )     (3,022 )
 
Obligations under finance leases – non current
    (11 )     (33 )     (43 )
 
Net debt
    (3,219 )     (2,909 )     (3,900 )
 
Net debt is not a defined term under IFRS and may not therefore be comparable with other similarly titled non-GAAP debt measures reported by other companies. Net debt is the measure we use for internal debt analysis. We believe that net debt is a useful measure as it indicates the level of indebtedness after taking account of the financial assets within our business that could be utilised to pay down debt. In addition the net debt balance provides an indication of the net borrowings on which we are required to pay interest.

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Contractual obligations
In accordance with IFRS7, the group presents contractual obligations on both a net settled and gross settled basis as at 31 December 2007 and 31 December 2006.
Contractual obligations — Net settled
As at 31 December 2007:
                                                 
    Total     Payable     <1 year     1-3 years     3-5 years     5 years +  
    £m     on demand     £m     £m     £m     £m  
 
Bank loans and overdrafts
    814       44       677       17       75       1  
 
Estimated interest payments - borrowings
    243             87       78       52       26  
 
Estimated net interest payments -interest rate swaps
    8             4       4              
 
Finance leases
    36             22       5       5       4  
 
Other borrowings
    2,868             1,841       526             501  
 
Operating leases
    399             79       118       81       121  
 
Purchase obligations
    431             365       52       14        
 
Expected payments into pension plans
    308             98       210              
 
Other non-current liabilities
    114                   114              
 
Total
    5,221       44       3,173       1,124       227       653  
 
Contractual obligations – Gross settled
As at 31 December 2007:
                                                 
    Total     Payable     <1 year     1-3 years     3-5 years     5 years +  
    £m     on demand     £m     £m     £m     £m  
 
Payments
                                               
 
Estimated foreign exchange payments - forward contracts
    233             214       19              
 
 
    233             214       19              
 
Receipts
                                               
 
Estimated foreign exchange receipts -forward contracts
    222             204       18              
 
 
    222             204       18              
 
Net payments
    11             10       1              
 
Where the fair value of derivatives are financial assets, future contract obligations are not shown.
Contractual obligations – Net settled
As at 31 December 2006:
                                                 
    Total     Payable     <1 year     1-3 years     3-5 years     5 years +  
    £m     on demand     £m     £m     £m     £m  
 
Bank loans and overdrafts
    297       84       83       60       69       1  
 
Estimated Interest payments - borrowings
    303             93       69       95       46  
 
Estimated Net Interest payments -interest rate swaps
    27             17       8       2        
 
Finance leases
    65             25       30       2       8  
 
Other borrowings
    2,952             1,272       1,095       77       508  
 
Operating leases
    380             66       107       83       124  
 
Purchase obligations
    300             273       27              
 
Expected payments into pension plans
    358             120       238              
 
Other non-current liabilities
    53                   53              
 
Total
    4,735       84       1,949       1,687       328       687  
 
Contractual obligations – Gross settled
As at 31 December 2006:
                                                 
    Total     Payable     <1 year     1-3 years     3-5 years     5 years +  
    £m     on demand     £m     £m     £m     £m  
 
Payments
                                               
 
Estimated Interest payments — cross currency interest rate swaps
    15             1       14              
 
Estimated Foreign Exchange payments — forward contracts
    713             709       4              
 
 
    728             710       18              
 
Receipts
                                               
 
Estimated Interest receipts — cross currency interest rate swaps
    13                   13              
 
Estimated Foreign Exchange receipts — forward contracts
    703             699       4              
 
 
    716             699       17              
 
Net payments
    12             11       1              
 
Where the fair value of derivatives are financial assets, future contractual obligations are not shown.
Estimated future interest rate payments on borrowings are based on the applicable fixed and floating rates of interest as at the end of the year for all borrowings or interest rate swap liabilities. The interest obligations in the above table have been calculated assuming that all borrowings and swaps in existence at year end will be held to maturity and no fluctuations in exchange rates have been projected.
Expected payments into pension plans represents the best current estimate of the payments to be made into the scheme over the next three years. We do not believe that it is possible to estimate with any accuracy future contribution rates.
Other non-current liabilities comprise trade and other payables, tax payable and long term provisions. Deferred tax liabilities have not been included within other non-current liabilities as these are not contractual obligations that will be settled by cash payment.
The Company has guaranteed borrowings and other liabilities of certain subsidiary undertakings, the amounts outstanding and recognised on the Group Balance Sheet at 31 December 2007 being £3,470 million (2006: £3,520 million). In addition certain of the Company’s subsidiaries have guaranteed borrowings of certain other subsidiaries. The amount covered by such arrangements as at 31 December 2007 was £2,017 million (2006: £2,658 million). Subsidiary undertakings have guarantees and indemnities outstanding amounting to £7 million (2006: £14 million).

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Off balance sheet arrangements
The Group has no off balance sheet arrangements.
Free Cash Flow
We define Free Cash Flow as the amount of cash generated by the business after meeting all our obligations for interest and tax and after all capital investment. In 2007, the Group revised its definition of Free Cash Flow to exclude dividends payable to equity shareowners to align with market practice. Free cash flow for 2006 has been re-presented from £200 million under the previous definition after the payment of £272 million dividends to equity shareowners to £472 million on a comparable basis and for 2005 from £404 million to £665 million after the payment of £261 million dividends to equity shareowners.
Free Cash Flow is not a defined term under IFRS and may not therefore be comparable with other similarly titled non-GAAP cash flow measures reported by other companies. Free Cash Flow is the measure we use for internal cash flow performance analysis and is the primary cash flow measure seen and used by the CEC. We believe that Free Cash Flow is a useful measure because it shows the amount of cash flow remaining after the cash generated by the Group through operations has been used to meet purposes over which the Group has little or no discretion such as taxation and interest costs or those which are characteristic of a continuing business, for example capital expenditure. Free Cash Flow therefore represents the amount of cash generated in the year by the business and provides investors with an indication of the net cash flows generated that may be used for, or are required to be funded by, other discretionary purposes such as investment in acquisitions, business disposals and the drawing and repayment of financing.
                         
    2007     2006     2005  
    £m     £m     £m  
 
Net cash from operating activities
    812       620       891  
 
Add back:
                       
 
Additional funding of past service pensions deficit
    48       67       31  
 
Taxes paid on disposals
    12       83        
 
Less:
                       
 
Net capital expenditure
    (352 )     (300 )     (261 )
 
Net associate and minority dividends received
    7       2       4  
 
Free Cash Flow
    527       472       665  
 
Net capital expenditure includes purchases of property, plant and equipment of £409 million (2006: £384 million 2005: £298 million) less proceeds on disposal of property, plant and equipment of £57 million (2006: £84 million 2005: £37 million).
In 2007, payments of £48 million (2006: £67 million 2005: £31 million) made into our principal Group defined benefit pension arrangements in respect of past service deficits have been excluded from Free Cash Flow. These payments are part of a wider pension funding strategy for the period from 2005 to 2008. We believe that the funding of these pension deficits is a discretionary use of Free Cash Flow comparable to the repayment of external borrowings and has therefore been added back in calculating Free Cash Flow. We will continue this reporting practice in future years. We continue to report the cash cost of funding pension obligations arising in respect of current year service within Free Cash Flow.
Consistent with the cash flow from disposals of subsidiaries being excluded from Free Cash Flow, associated tax payments are also excluded from the Group’s definition of Free Cash Flow.
Taxes paid on disposals in 2007 relate to the disposal of the European Beverages business.
In 2006, tax payments arising on disposals of £83 million, principally a £74 million payment to the UK tax authorities in settlement of a tax dispute arising on the 1997 disposal of Coca-Cola & Schweppes Beverages, have been excluded from Free Cash Flow. This aligns the treatment of the tax with the treatment of the disposal proceeds which are excluded from Free Cash Flow.
In 2007, we generated Free Cash Flow of £527 million, an increase of £55 million compared to 2006 when Free Cash Flow was £472 million (2005: £665 million).
The Free Cash Flow has benefited from the termination settlement from Glacéau, improved working capital and decreases in net payments of interest and tax which more than offset increased capital expenditure. We remain strongly cash generative, reflecting the high margin and cash generative nature of the Group’s business.
Net cash flow from operating activities as shown in the cash flow statement on page F-6 was £812 million (2006: £620 million; 2005: £891 million).
Cash flows on acquisitions and disposals
The net cash outflow in 2007 on acquisitions and disposals was £320 million. This principally comprised the acquisitions of Intergum, Sansei, Kandia-Excelent and South East Atlantic Beverages offset by disposal proceeds.
The net cash inflow in 2006 on acquisitions and disposals was £898 million. This comprised £1,295 million of proceeds from disposals offset by acquisitions of £375 million, principally the purchase of the remaining 55% of the share capital of CSBG for £201 million.
The cash outflow in 2005 on acquisitions was £71 million. This included the acquisition of Green & Black’s and the final settlement in respect of the purchase of Adams China. In addition we purchased an incremental 5% share in our associate Dr Pepper/Seven Up Bottling Group and acquired a further investment in our Nigerian associate, taking ownership closer to majority. Disposal proceeds of £41 million arose on the disposal of our investment in Gumlink, a Danish gum production business and Holland House Cooking Wines, a US beverages brand.
Net cash flow before financing in 2007 was £245 million (2006: £1,142 million; 2005: £583 million).
Financing cash flows
The net cash inflow from financing during 2007 was £14 million. This included payment of dividends of £311 million to shareowners and the receipt of £56 million from issue of ordinary shares due to the exercising of options. In the year net drawdown of borrowings was £304 million.
The net cash outflow from financing during 2006 was £1,212 million. This included payment of dividends of £272 million to shareowners. In 2006 net repayments of borrowings were £949 million.
The net cash outflow from financing during 2005 was £592 million. This included payment of dividends of £261 million to shareowners. In the year borrowings of £193 million were repaid. This was offset by the £219 million of incremental borrowings required to repay the Group’s US$400 million Quarterly Income Preferred Securities (QUIPs).
Net cash
Cash and cash equivalents (net of overdrafts) increased during 2007 by £263 million to £449 million from £186 million at 31 December 2006 due to timing of cash receipts. In 2006, net cash decreased by £90 million from £276 million at 1 January 2006. We invest our cash predominantly in instruments with investment grade credit ratings and the maximum exposure to any single counterparty is strictly limited.
Capital expenditure
Capital expenditure in 2007 was £409 million (2006: £384 million 2005: £298 million), an increase of 7% over the level of expenditure in 2006. Key areas of capital expenditure increase related to investment in the production capacity and facilities of the Group, in particular chocolate production in UK and gum capacity in Europe. All these projects were funded from internal resources.
For 2008 we expect capital spend to be 5.5% of revenue on ongoing basis and an additional 2% of revenue incurred as part of our Vision into Action programme. At 31 December 2007 we had capital commitments of £16 million. We expect to continue to fund this from internal resources.
Treasury risk management policies
Other than expressly stated, the policies set out below also apply to prior years, and the information provided is representative of the Group’s exposure to risk during the period.
(a) Credit Risk
The Group is exposed to credit related losses in the event of non-performance by counterparties to financial instruments, but it does not expect any counterparties to fail to meet their obligations given the Group’s policy of selecting only counterparties with high credit ratings. The exposure to credit loss of liquid assets is equivalent to the carrying value on the balance sheet. The maximum credit exposure of interest rate and foreign exchange derivative contracts is represented by the fair value of contracts with a positive fair value at the reporting date.
Counterparties to financial instruments are limited to financial institutions with high credit ratings assigned by international credit rating agencies. The Group has ISDA Master Agreements with most of its counterparties to financial derivatives, which permits net settlement of assets and liabilities in certain circumstances, thereby reducing the Group’s credit exposure to individual counterparties. The Group has policies that limit the amount of credit exposure to any single financial institution. Over year end this policy was breached in respect of one financial institution for a period of six days. The Group is now in compliance with policy and was compliant for the whole of 2007 except for this period.
At the year-end, the Group had currency swaps with a notional value of $32 million with a financial institution with a credit quality lower than that permitted under Group Policy. $1.4 million cash collateral has been obtained from the counterparty as security to mitigate against the higher credit risk. The book value of the cash collateral is equal to its fair value.
Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and unrelated. There were no significant concentrations of credit exposure at the year-end relating to other aspects of credit. Management therefore believe there is no further credit risk provision required in excess of normal provision for doubtful receivables.
The Group is exposed to £3,470 million in credit exposure on financial guarantees issued in respect of Group corporate borrowings and certain subsidiary undertakings which represents the Group’s maximum credit exposure arising from guarantees. Refer to Note 34 on Commitments and Contingencies for further details.

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The financial assets of the Group which are exposed to credit risk are:
         
Class
       
 
Commodities
    2  
 
Trade receivables
    952  
 
Interest rate swaps
    9  
 
Currency exchange contracts
    38  
 
Cash
    493  
 
Short-term investments
    2  
 
(b) Liquidity Risk
The Group is exposed to liquidity risk due to the possibility that un-forecast situations could give rise to uncertainty amongst lenders resulting in unavailability of uncommitted sources of funds.
The Group seeks to achieve a balance between certainty of funding, even at difficult times for the markets or the Group, and a flexible, cost-effective borrowings structure. Consequently the policy seeks to ensure that at all projected net borrowing needs are covered by committed facilities.
The objective for debt maturities is to ensure that the amount of debt maturing in any one year is not beyond the Group’s means to repay and refinance. To this end the policy provides that at least 75% of year-end net debt should have a maturity of one year or more and at least 50%, three years or more. Committed but undrawn facilities are taken into account for this test. At year end the Group was in breach of this policy as only 66% of net debt including undrawn facilities had a maturity of one year or more and only 16% three years or more. The Group’s reliance on short term debt has deliberately increased as part of the planning for the Americas Beverages demerger, as agreed with the Board.
The Company uses maturity analysis (see table on page F-49 -debt and page F-52 — derivatives) and facilities analysis (see table on page F-48) to measure liquidity risk. The Company manages the liquidity risk inherent in this analysis by having very diverse funding sources and committed borrowing facilities that can be accessed to meet liquidity needs.
(c) Market Risk
(i) Currency Risk
The Group operates internationally giving rise to exposure from changes in foreign exchange rates, particularly the US dollar. The Group does not hedge translation exposure and earnings because any benefit obtained from such hedging can only be temporary.
The Group seeks to relate the structure of borrowings to the trading cash flows that service them. The Group’s policy is to maintain broadly similar fixed charge cover ratios for each currency bloc and to ensure that the ratio for any currency bloc does not fall below two times in any calendar year. This is achieved by raising funds in different currencies and through the use of hedging instruments such as swaps.
The Group also has transactional currency exposures arising from its international trade. The Group’s policy is to take forward cover for all forecasted receipts and payments for as far ahead as the pricing structures are committed, subject to a minimum of three months’ cover. The Group makes use of the forward foreign exchange markets to hedge its exposures.
While there are exchange control restrictions which affect the ability of certain of the Group’s subsidiaries to transfer funds to the Group, the operations affected by such restrictions are not material to the Group as a whole and the Group does not believe such restrictions have had or will have any material adverse impact on the Group as a whole or the ability of the Group to meet its cash flow requirements.
The tables on page 43 show data about exposure to risk at the reporting date.
(ii) Interest Rate Risk
The Group has an exposure to interest rate fluctuations on its borrowings and manages these by the use of interest rate swaps, cross currency interest rate swaps, forward rate agreements and interest rate caps. The objectives for the mix between fixed and floating rate borrowings are set to reduce the impact of an upward change in interest rates while enabling benefits to be enjoyed if interest rates fall.
The treasury risk management policy sets minimum and maximum levels of the total of net debt and preferred securities permitted to be at fixed or capped rates in various time bands, ranging from 50% to 100% for the period up to six months, to 0% to 30% when over five years. These percentages are measured with reference to the current annual average level of net debt. 54% of net debt was at fixed rates of interest at year end (2006: 75%; 2005: 84%). The Group was in breach of policy in respect of fixed rate debt maturing within two and three years. This was agreed with the Board as part of the planning for the Americas Beverages disposal. It is anticipated that the Group will become compliant once its borrowings profile is restructured after the planned demerger of the Americas Beverages business.
The currency profile of borrowings note on pages F-50 and F-51 discusses interest rate risk further, and the table gives quantitative data in relation to interest rate risk.
(iii) Fair value analysis
The table below presents a sensitivity analysis of the changes in fair value (which all impact the profit and loss) of the Group’s financial instruments from hypothetical changes in market rates. The fair values are quoted market prices or, if not available, values estimated by discounting future cash flows to net present values (further fair value sensitivity analysis of derivatives is set out in Note 28 to the financial statements).
The analysis on page 43 shows forward-looking projections of market risk assuming certain adverse market conditions occur. The sensitivity figures are calculated based on a downward parallel shift of 1% in yield curves and 10% weakening of sterling against other exchange rates. An upward parallel shift of 1% in yield curves and 10% strengthening of sterling against other exchange rates would result in an equal and opposite effect on fair values to the table below.
The sensitivity analysis on page 43 shows forward-looking projections of market risk assuming certain adverse market conditions occur for all financial instruments except commodities. This is a method of analysis used to assess and mitigate risk and should not be considered a projection of likely future events and losses. Actual results and market conditions in the future may be materially different from those projected and changes in the instruments held and in the financial markets in which we operate could cause losses to exceed the amounts projected.

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As at 31 December 2007:
                         
    Impact on Income Statement arising from  
                    10% weakening  
                    in £ against  
            1% decrease in     other  
    Fair Value     interest rates     currencies1  
    £m     £m     £m  
 
Cash and cash equivalents
    493       (5 )     36  
 
Short-term investments
    2              
 
Borrowings
    (3,696 )     8       (351 )
 
Cross currency interest rate swaps
    5              
 
Interest rate swaps
    (2 )            
 
Currency exchange contracts (including embedded derivatives)
    22             2  
 
As at 31 December 2006:
                         
    Impact on Income Statement arising from  
                    10% weakening  
                    in £ against  
            1% decrease in     other  
    Fair Value     Interest rates     currencies1  
    £m     £m     £m  
 
Cash and cash equivalents
    269       (3 )     14  
 
Short-term investments
    126       (1 )     11  
 
Borrowings
    (3,277 )     8       (304 )
 
Cross currency interest rate swaps
    10       (1 )     1  
 
Interest rate swaps
    (4 )     2        
 
Currency exchange contracts (including embedded derivatives)
    10             1  
 
As at 1 January 2006:
                         
    Impact on Income Statement arising from  
                    10% weakening  
                    in £ against  
            1% decrease in     other  
    Fair Value     interest rates     currencies1  
    £m     £m     £m  
 
Cash and cash equivalents
    332           19  
 
Short-term investments
    47             4  
 
Borrowings
    (4,277 )     (96 )     (364 )
 
Cross currency interest rate swaps
    11       2       1  
 
Interest rate swaps
    (9 )     (6 )     (1 )
 
Currency exchange contracts (including embedded derivatives)
    (2 )           4  
 
 
1   The Group hedges against currency risk using currency derivative contracts and by structuring the currency of its borrowings to relate to the trading cash flows that service them. Where IAS 39 hedge accounting is not applied the offsetting effect of such hedges is not included in the tables above.
(iv) Commodities
In respect of commodities the Group enters into derivative contracts for cocoa, sugar, aluminium and other commodities in order to provide a stable cost base for marketing finished products. The use of commodity derivative contracts enables the Group to obtain the benefit of guaranteed contract performance on firm priced contracts offered by banks, the exchanges and their clearing houses.
The Group held the following commodity futures contracts at 31 December 2007:
                         
    2007     2006     2005  
    Fair     Fair     Fair  
    value     value     value  
    £m     £m     £m  
 
Commodities (asset)
    2       3       13  
 
Commodities (liabilities)
    (3 )     (5 )     (1 )
 
Total
    (1 )     (2 )     12  
 
The commodities derivative contracts held by the Group at the year-end expose the Group to adverse movements in cash flow and gains or losses due to the market risk arising from changes in prices for sugar, cocoa, aluminium and other commodities traded on commodity exchanges. Applying a reasonable rise or fall in commodity prices to the Group’s net commodity positions held at the year end would result in a movement of £6.2 million (2006: £7.0 million 2005: £6.8 million) which would be recognised in the finance charge for the period. The price sensitivity applied in this case is estimated based on an absolute average of historical monthly changes in prices in the Group’s commodities over a two year period. Stocks, priced forward contracts and estimated anticipated purchases are not included in the calculations of the sensitivity analysis. This method of analysis is used to assess and mitigate risk and should not be considered a projection of likely future events and losses. Actual results and market conditions in the future may be materially different from the projection in this note and changes in the instruments held and in the commodities markets in which the Group operates could cause losses to exceed the amounts projected.

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Review of accounting policies
Critical accounting estimates
The preparation of our financial statements in conformity with IFRS, require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenue and expenses during the period. Our significant accounting policies are presented in the notes to the financial statements.
Critical accounting policies are those that are most important to the portrayal of our financial condition, results of operations and cash flow, and require management to make difficult, subjective or complex judgements and estimates about matters that are inherently uncertain. Management bases its estimates on historical experience and other assumptions that it believes are reasonable. Our critical accounting policies are discussed below.
Actual results could differ from estimates used in employing the critical accounting policies and these could have a material impact on our results. We also have other policies that are considered key accounting policies, such as the policies for revenue recognition, cost capitalisation and cocoa accounting. However, these policies, which are discussed in the notes to the Group’s financial statements, do not meet the definition of critical accounting estimates, because they do not generally require estimates to be made or judgements that are difficult or subjective.

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(i) Brands and other acquisition intangibles
Brands and other intangibles that are acquired through acquisition are capitalised on the balance sheet. These brands and other intangibles are valued on acquisition using a discounted cash flow methodology and we make assumptions and estimates regarding future revenue growth, prices, marketing costs and economic factors in valuing a brand. These assumptions reflect management’s best estimates but these estimates involve inherent uncertainties, which may not be controlled by management.
Upon acquisition we assess the useful economic life of the brands and intangibles. We do not amortise over 95% of our brands by value. In arriving at the conclusion that a brand has an indefinite life, management considers the fact that we are a brands business and expects to acquire, hold and support brands for an indefinite period. We support our brands through spending on consumer marketing and through significant investment in promotional support, which is deducted in arriving at revenue. Many of our brands were established over 50 years ago and continue to provide considerable economic benefits today. We also consider factors such as our ability to continue to protect the legal rights that arise from these brand names indefinitely or the absence of any regulatory, economic or competitive factors that could truncate the life of the brand name. No amortisation is charged on franchise rights acquired through acquisitions where the rights relate to brands owned by the Group and there brands have been assigned an indefinite life. This is because the Group believes that these rights will extend indefinitely. Where we do not consider these criteria to have been met, as was the case with certain brands acquired with Adams and CSBG, a definite life is assigned and the value is amortised over the life.
The cost of brands and other acquisition intangibles with a finite life are amortised using a methodology that matches management’s estimate of how the benefit of the assets will be extinguished. Each year we re-evaluate the remaining useful life of the brands and other intangibles. If the estimate of the remaining useful life changes, the remaining carrying value is amortised prospectively over that revised remaining useful life.
A strategic decision to withdraw marketing support from a particular brand or the weakening in a brand’s appeal through changes in customer preferences might result in management concluding that the brand’s life had become finite. Were intangible assets to be assigned a definite life, a charge would be recorded that would reduce reported profit from operations and reduce the value of the assets reported in the balance sheet. We have consistently applied our estimate of indefinite brand lives since the date we first recognised brands as intangible assets in 1989 except for one brand where we amended our original estimate from an indefinite life to a definite life asset as the products had been re-branded.
(ii) Recoverability of long-lived assets
We have significant long-lived asset balances, including intangible assets, goodwill and tangible fixed assets. Where we consider the life of intangible assets and goodwill to be indefinite the balance must be assessed for recoverability on at least an annual basis. In other circumstances the balance must be assessed for recoverability if events occur that provide indications of impairment. An assessment of recoverability involves comparing the carrying value of the asset with its recoverable amount, typically its value in use. If the value in use of a long-lived asset were determined to be less than its carrying value, as is the case for Cadbury China during 2007 and was the case for Cadbury Nigeria during 2006, an impairment is charged to the income statement.
The key assumptions applied in arriving at a value in use for a long-lived asset are:
> The estimated future cash flows that will be derived from the asset; and
> The discount rate to be applied in arriving at a present value for these future cash flows.
(iii) Future cash flows
In estimating the future cash flows that will be derived from an asset, we make estimates regarding future revenue growth and profit margins for the relevant assets. These estimates are based on historical data, various internal estimates and a variety of external sources and are developed as part of the long-term planning process. Such estimates are subject to change as a result of changing economic and competitive conditions, including consumer trends. Higher estimates of the future cash flows will increase the fair values of assets. Conversely, lower estimates of cash flows will decrease the fair value of assets and increase the risk of impairment. We attempt to make the most appropriate estimates of future cash flows but actual cash flows may be greater or less than originally predicted.
(iv) Discount rates
The future cash flows are discounted at rates that we estimate to be the risk adjusted cost of capital for the particular asset. An increase in the discount rate will reduce the fair value of the long-lived assets, which could result in the fair value falling below the assets carrying value and an impairment being realised as part of the annual impairment review. On the other hand a decrease in the discount rate will increase the fair value of the long-lived assets and decrease the likelihood of impairment.
Future changes in interest rates, the premium the capital markets place on equity investments relative to risk-free investments and the specific assessment of the capital markets as to our risk relative to other companies can all affect our discount rate. Increases in interest rates and/or the risk premium applied by the capital markets would both result in increased discount rates. Conversely a reduction in interest rates and/or the risk premium applied by the capital markets would both result in decreased discount rates. These factors are largely outside of our control or ability to predict. For the past five years management has applied a Group discount rate of between 8.0% and 8.5% .
Where applicable, we review the reasonableness of all assumptions by reference to available market data including, where applicable, the publicly quoted share price of the Company. Changes in the assumptions used by management can have a significant impact on the estimated fair value of assets and hence on the need for, or the size of, an impairment charge.
(v) Trade spend and promotions
Accrued liabilities associated with marketing promotion programmes require difficult subjective judgements. We utilise numerous trade promotions and consumer coupon programmes. The costs of these programmes are recognised as a reduction to revenue with a corresponding accrued liability based on estimates made at the time of shipment or coupon release. The accrued liability for marketing

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promotions is determined through analysis of programmes, historical trends, expectations around customer and consumer participation, revenue and payment trends, and experiences of payment patterns associated with similar programmes that have previously been offered, often in consultation with external advisers. Management has significant experience in making such estimates. However each programme is different and it is possible that the initial estimate of the costs of such programmes and therefore the reduction in revenue recorded based on such estimates, may differ from the actual results. To the extent that the period end accrual proves different to the actual payments required in the subsequent period an adjustment is recorded in the subsequent period.
Up front payments are made to secure product installation in the fountain and food service channel of several of our beverage products. These payments are amortised (as a deduction to revenue) based upon a methodology (time or volumes sold) consistent with our contractual rights under these arrangements. Were we unable to enforce our rights under the relevant contracts we may be required to accelerate the recognition of such costs, which would reduce future revenue.
(vi) Pensions
Several subsidiaries around the world maintain defined benefit pension plans. The biggest plans are located in UK, Ireland, US, Canada, Mexico and Australia. The pension liabilities recorded are based on actuarial assumptions, including discount rates, expected long-term rate of return on plan assets, inflation and mortality rates. The assumptions are based on current market conditions, historical information and consultation with and input from actuaries. Management reviews these assumptions annually. If they change, or if actual experience is different from the assumptions, the funding status of the plan will change and we may need to record adjustments to our previously recorded pension liabilities.
The cost of providing pension benefits is calculated using a projected unit credit method. The assumptions we apply are affected by short-term fluctuations in market factors. We use external actuarial advisers and management judgement to arrive at our assumptions.
In arriving at the present value of the pension liabilities, we estimate the most appropriate discount rate to be applied. We are required to base our estimate on the interest yields earned on high quality, long-term corporate bonds. As the estimate is based on an external market variable the subjectivity of the assumption is more limited, however actual interest rates may vary outside of our control, so the funding status and charge will change over time. A decrease in the discount factor will increase the pension liabilities and may increase the charge recorded. An increase in the discount factor will decrease the pension liabilities and may decrease the charge recorded.
In calculating the present value of the pension liabilities we are also required to estimate mortality rates (or life expectancy), including an expectation of future changes in mortality rates. The Group uses actuarial advisers to select appropriate mortality rates that best reflect the Group’s pension scheme population. If the mortality tables, or our expectation of future changes in the mortality tables, differ from actual experience then we will be required to revise our estimate of the pension liabilities and may be required to adjust the pension cost.
In calculating the pension cost, we are also required to estimate the expected return to be made on the assets held within the pension funds. We have taken direct account of the actual investment strategy of the associated pension schemes and expected rates of return on the different asset classes held. In the case of bond investments, the rates assumed have been directly based on market redemption yields at the measurement date, whilst those on other asset classes represent forward-looking rates that have typically been based on other independent research by investment specialists. A decrease in the expected rate of return will increase the pension charge for the year. Conversely an increase in the expected rate of return will decrease the pension charge for the year. If the actual returns fall below the long-term trend estimate the charge recorded in future periods will increase. If the actual returns exceed the long-term estimate the charge recorded in future periods will decrease.
Where defined benefit pension plans have an asset value in excess of the valuation of liabilities we consider whether this surplus will be realisable by the Group in the future either through a reduction in contributions or guaranteed refunds on cessation of the plan.
An indication of the variability of the main assumptions applied by management for the UK plan over the past three years is set out below:
                         
    2007     2006     2005  
 
Discount rate
    5.8 %     5.2 %     5.0 %
 
Rate of asset returns
    6.6 %     6.8 %     7.2 %
 
Rate of salary increases
    4.3 %     4.4 %     4.2 %
 
A 50 basis point decrease in the estimate of the discount rate would have resulted in an approximate 9% increase in the pension liabilities. A 50 basis point decrease in the estimate of the long-term rate of return on assets would have resulted in an approximate £14 million increase in the pension costs.
(vii) Income taxes
As part of the process of preparing our financial statements, we are required to estimate the income tax in each of the jurisdictions in which we operate. This process involves an estimation of the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the balance sheet.
Significant management judgement is required in determining the provision for income tax and the recognition of deferred tax assets and liabilities. However, the actual tax liabilities could differ from the provision. In such an event, we would be required to make an adjustment in a future period, and this could materially impact our financial position and results of operations.
We operate in numerous countries but the tax regulations in the US and the UK have the most significant effect on income tax and deferred tax assets and liabilities, and the income tax expense. The tax regulations are highly complex and whilst we aim to ensure the estimates of tax assets and liabilities that are recorded are accurate, the process of agreeing tax liabilities with the tax authorities

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can take several years and there may be instances where the process of agreeing tax liabilities requires adjustments to be made to estimates previously recorded.
In the last three years the impact that revising the initial estimates has had on the recorded charge for current and deferred taxes and the corresponding increase in profits is set out below:
                         
    2007     2006     2005  
    £m     £m     £m  
 
(Reduction)/increase in current tax charge
    (24 )     4       (38 )
 
Increase/(reduction) in deferred tax charge
    2       (46 )     (96 )
 
We recognised deferred tax liabilities of £1,145 million (2006: £1,050 million 2005: £954 million) at 31 December 2007, and have recognised deferred tax assets of £124 million (2006: £170 million 2005: £123 million). There are further unrecognised deferred tax assets for losses of £179 million (2006: £187 million 2005: £165 million). These losses relate to unrelieved tax losses in certain countries. We are required to assess the likelihood of the utilisation of these losses when determining the level of deferred tax assets for losses to be recognised. We do this based on the historical performance of the businesses, the expected expiry of the losses and the forecast performance of the business. These estimates continue to be assessed annually and may change in future years, for example if a business with history of generating tax losses begins to show evidence of creating and utilising taxable profits. In 2005, the annual assessment of the recoverability of the UK tax position resulted in the recognition of a deferred tax asset in the UK for the first time and a credit to profits of £104 million. £82 million of such unrecognised tax losses have no time limits and hence these tax losses have a greater probability of future recognition. Any change in the recognition of deferred tax assets for losses would generate an income tax benefit in the income statement in the year of recognition and an income tax cost in the year of utilisation.
Accounting policy changes
There have been no significant changes in our IFRS accounting policies during 2007.
Recent Accounting Pronouncements
The following amendments, revisions and new interpretations have been published by the International Accounting Standards Board:
An amendment to IAS 32, “Financial Instruments: Presentation” and IAS 1, “Presentation of Financial Statements”, addresses the classification of some puttable financial instruments and instruments, or components of instruments, that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation. This amendment is effective for annual periods beginning on or after 1 January 2009. The Group is currently assessing the impact of this amendment on the Group’s financial position, results of operations or cash flows.
An amendment to IFRS 2, “Share based payment”, clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. As such these features would need to be included in the grant date fair value for transactions with employees and others providing similar services, that is, these features would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. This may have an impact on the accounting for SAYE and matching share plans for example. This amendment is effective for annual periods beginning on or after 1 January 2009. The Group is currently assessing the impact of this amendment on the Group’s financial position, results of operations or cash flows.
IFRS 3 (Revised), “Business combinations”, continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with some contingent payments subsequently remeasured at fair value through income. Goodwill may be calculated based on the parent’s share of net assets or it may include goodwill related to the minority interest. All transaction costs will be expensed. The standard is applicable to business combinations occurring in accounting periods beginning on or after 1 July 2009, with earlier application permitted. This may impact the Group should the Group make material acquisitions in the future.
IAS 27 (Revised), “Consolidated and separate financial statements”, requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. They will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value and a gain or loss is recognised in profit or loss. The Group is currently assessing the impact of this revision on the Group’s financial position, results of operations or cash flows.
IAS 1 (Revised), “Presentation of financial statements”, will prohibit the presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes in equity. All non-owner changes in equity will be required to be shown in a performance statement but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). The revised IAS 1 also states that entities making restatements or reclassifications of comparative information will be required to present a restated balance sheet as at the beginning of the comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. The standard is effective for periods beginning on or after 1 January 2009. The Group is currently assessing the impact of this revision on the presentation of the Group’s financial position, results of operations or cash flows.
IAS 23 (Revised), “Borrowing costs” requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. It is effective for annual periods beginning on or after 1 January 2009. This standard has not yet been endorsed by the EU. The Group is currently assessing the impact of this revision on the Group’s financial position, results of operations or cash flows.
IFRIC 13, “Customer Loyalty Programmes” clarifies that where goods or services are sold together with a customer loyalty incentive, the arrangement is a multiple-element arrangement and the consideration receivable from the customer should be allocated between the components of the arrangement in proportion to their fair values. IFRIC 13 is effective for annual periods beginning on or after 1 July 2008. The Group does not currently expect this interpretation to have a material impact on its financial position, results or cash flows. This interpretation has not yet been endorsed by the EU.
IFRIC 14, “IAS 19 — The limit on a defined benefit asset, minimum funding requirements and their interaction” provides guidance on assessing the limit in IAS 19, “Employee benefits” on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. IFRIC 14 is effective for annual periods beginning on or after 1 January 2008. This interpretation has not yet been endorsed by the EU. The Group has considered IFRIC 14 when applying the current IAS 19 standard in its 2007 Report and Accounts.

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ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
BOARD OF DIRECTORS
We are managed by our Board of Directors. The following sets forth information concerning each of the directors of the Company as of 31 March 2008.
1 Sir John Sunderland ‡ *
Chairman
Term of office: Appointed as Chairman in May 2003. Sir John was last re-elected in 2007 and is not retiring by rotation or standing for re-election in 2008. Sir John has announced he will retire as Chairman in mid 2008. SirJohn is Chairman of the Nomination Committee.
Skills and experience: Sir John has 39 years of experience working within the Cadbury Schweppes Group in the UK and overseas on both the confectionery and beverage side of the business. He has held senior leadership roles within the Company, including being CEO from 1996 to 2003. Sir John’s experience, together with his roles in key trade and business organisations, is invaluable to the business and makes him ideally placed to chair the Board as it seeks to create enhanced shareowner value. He was knighted in the 2006 Queen’s Birthday Honours list.
Other directorships and offices:
  Deputy President of the Confederation of British Industry
 
  Non-executive Director of Barclays PLC
 
  Director of the Financial Reporting Council
 
  Advisory Board member of CVC Capital Partners
 
  Advisory Board member of Ian Jones & Partners
 
  Advisory Board member of Marakon Associates
2 Roger Carr # † ‡
Deputy Chairman and Senior Independent Non-Executive Director
Term of office: Appointed to the Board in January 2001 and Deputy Chairman and Senior Independent non-executive Director since May 2003. Roger was last re-elected in 2006 and is not retiring or standing for re-election in 2008. From mid 2008 Roger will replace Sir John Sunderland as Chairman.
Skills and experience: Roger’s experience as both a Chairman and Chief Executive of other FTSE 100 companies enables him to provide highly valued advice and support to the executive management team of the Company. He is responsible for consulting with major UK shareowners on matters of corporate governance.
Other directorships and offices:
  Non-executive Chairman of Centrica plc
 
  Non-executive Chairman of Mitchells & Butlers plc (resigning in mid-2008)
 
  Non-executive Director of The Bank of England
 
  Fellow of the Royal Society for the Encouragement of Arts, Manufacturers and Commerce
 
  Chairman of Chubb plc (2000–2002)
 
  Chairman of Thames Water (1998–2000)
 
  Chief Executive Officer of Williams plc (1994–2000)
3 Todd Stitzer *
Chief Executive Officer
Term of office: Appointed to the Board in March 2000. Appointed CEO in May 2003. Todd was last re-elected in 2006 and is not retiring or standing for re-election in 2008.
Skills and experience: Todd joined Cadbury Schweppes North America in 1983 as assistant general counsel and has gained extensive international experience in senior legal, marketing, sales, strategy development and general management roles within the Company. Todd’s business leadership, legal and commercial expertise make him well placed to lead the organisation as it delivers on its commitment to deliver superior shareowner performance. Todd was President & CEO of Dr Pepper/Seven Up, Inc. between 1997 and 2000 and Chief Strategy Officer between March 2000 and May 2003.
Other directorships and offices:
  Non-executive director of Diageo plc
4 Ken Hanna
Chief Financial Officer
Term of office: Appointed to the Board in April 2004. Ken was last re-elected in 2006 and is not retiring or standing for re-election in 2008.
Skills and experience: Ken has a broad range of experience gained while working as the Group Finance Director of United Distillers plc (1993–1997) and the Chief Executive Officer and Group Finance Director of Dalgety plc (1997–1999). In addition, Ken’s focus on consumer goods while an Operating Partner at the private equity firm Compass Partners (1999–2004) makes him particularly qualified to lead the Cadbury Schweppes finance function.
Other directorships and offices:
  Non-executive Director of Inchcape plc
5 Bob Stack *
Chief Human Resources Officer
Term of office: Appointed to the Board in May 1996. Bob was last re-elected in 2005 and is retiring by rotation and standing for re-election in 2008.

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Skills and experience: Bob has wide international Human Resources expertise. Bob joined Cadbury Beverages in the US in 1990 as Vice-President, Human Resources for the global beverages business. In 1992 he moved to the UK as Group Director of Strategic Human Resources Management, being appointed to the Board as Chief Human Resources Officer in 1996. Bob’s responsibilities also include corporate and external affairs and corporate communications.
Other directorships and offices:
  Non-executive Director of J Sainsbury plc
 
  Visiting Professor at Henley Management College
6 Sanjiv Ahuja ‡ *
Independent Non-Executive Director
Term of office: Appointed to the Board on 19 May 2006. Sanjiv was last re-elected in 2007 and is not retiring or standing for re-election in 2008.
Skills and experience: Sanjiv has wide ranging international experience from some of the largest consumer-facing industries in the world and a strong information technology background.
Other directorships and offices:
  Chairman and Chief Executive Officer of Augere
 
  Chairman of Orange UK
 
  Member of France Telecom’s Group Management Committee
7 Dr Wolfgang Berndt # †
Independent Non-Executive Director
Term of office: Appointed to the Board in January 2002. Wolfgang was last re-elected in 2005 and is retiring by rotation and standing for re-election in 2008. He is Chairman of the Remuneration Committee.
Skills and experience: Wolfgang’s broad range of executive and operational experience gained over a career managing consumer goods companies enables him to contribute significantly to the Board.
Other directorships and offices:
  Non-executive Director of Lloyds TSB Group plc
 
  Non-executive Director of GfK AG
 
  Non-executive Director of Telekom Austria
 
  President Global Fabric & Home Care sector of The Procter & Gamble Co (1998–2001)
8 Lord Patten ‡ *
Independent Non-Executive Director
Term of office: Appointed to the Board in July 2005. Lord Patten was last re-elected in 2006 and is retiring by rotation and standing for re-election in 2008. He is Chairman of the Corporate and Social Responsibility Committee.
Skills and experience: Lord Patten’s distinguished career in public office enables him to bring a great deal of experience and expertise to the Board, especially in the area of international relations, which is valuable to a Group that has a presence in almost every country in the world.
Other directorships and offices:
  Chancellor of Oxford University
 
  Chancellor of Newcastle University
 
  Advisory Board member of Bridgepoint Capital Ltd
 
  Advisory Board member of AIG
 
  European Commissioner for External Relations (1999–2004)
 
  Governor of Hong Kong (1992–1997)
9 David Thompson # † *
Independent Non-Executive Director
Term of office: Appointed to the Board in March 1998. David was last re-elected in 2007 and will resign from the Board on 8 March 2008. He is Chairman of the Audit Committee. Skills and experience: David has considerable financial and retail experience, enabling him to provide a significant contribution to the Board and Audit Committee.
Other directorships and offices:
  Chairman of the Nottingham Building Society
 
  Finance Director of The Boots Company plc (1990–2002)
10 Raymond Viault # † ‡
Independent Non-Executive Director
Term of office: Appointed to the Board on 1 September 2006. Raymond was last re-elected in 2007 and is not retiring by rotation or standing for re-election in 2008.
Skills and experience: Raymond’s extensive international experience in confectionery, food and consumer products companies enables him to contribute significantly to the Board.
Other directorships and offices:
  Director of Safeway, Inc.
 
  Director of Newell Rubbermaid, Inc.
 
  Director of VF Corporation
 
  Vice Chairman of General Mills, Inc. (1996–2004)
11 Ellen Marram
Independent Non-Executive Director
Term of office: Appointed to the board on 1 June 2007. Ellen is standing for re-election in 2008 at the first Annual General

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Meeting since her appointment.
Skills and experience: Ellen has extensive experience in the food and beverages industry and the broader consumer sector which enables her to contribute significantly to the Board.
Other directorships and offices:
  President of The Barnegat Group
 
  Director of The Ford Motor Company
 
  Director of The New York Times Company
 
  Director of Eli Lilly
 
  Managing Director of North Castle Partners (2000–2005)
 
  Group President (1993–1998) and Chief Executive (1997–1998) of the Tropicana Beverage Group
 
  President and Chief Executive Officer of the Nabisco Biscuit Company (1988–1993)
12 Guy Elliott #
Independent Non-Executive Director
Term of office: Appointed to the board on 27 July 2007. Guy is standing for re-election in 2008 at the first Annual General Meeting since his appointment.
Skills and experience: Guy has extensive financial and commercial experience, particularly in mergers and acquisitions which enables him to contribute significantly to the Board.
Other directorships and offices:
  Finance Director of Rio Tinto plc and Rio Tinto Limited.
13 Henry Udow
Chief Legal Officer and Group Secretary
Term of office: Appointed Group Secretary on 28 September 2007.
Skills and experience: Henry joined Cadbury Schweppes North America in 1987 as Division Counsel & Assistant Secretary after working in private practice with the law firm of Shearman & Sterling in the US and UK. In 1991 he became Vice President, General Counsel & Secretary of Cadbury Schweppes North America. In 1994 he moved to the UK to take up his role of Senior Vice President, Legal Director and General Counsel of Cadbury Schweppes’ Global Beverages business. In 2000 he moved from the Legal Department to become Mergers & Acquisitions Director, heading up all merger and acquisition activity for Cadbury Schweppes, both Beverages and Confectionery. He was appointed Chief Legal Officer in 2005, heading up the Global Legal Function for Cadbury Schweppes.
Board Committee membership key
 
#   Audit Committee
 
  Remuneration Committee
 
  Nomination Committee
 
*   Corporate and Social Responsibility Committee

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UK corporate governance
This report has been prepared in accordance with the Code of Best Practice set out in section 1 of the June 2006 FRC Combined Code on Corporate Governance. Cadbury Schweppes plc has complied with the provisions of the Code throughout the year.
US Corporate governance
Because we are a UK company with our shares listed on the New York Stock Exchange (NYSE) as well as the London Stock Exchange, we are required to comply with some of the NYSE Corporate Governance rules, and otherwise must disclose any significant ways in which our corporate governance practices differ from those followed by US companies under the NYSE listing standards. We comply with all the NYSE rules which apply to non-US issuers. The NYSE rules require the Nomination Committee to be composed entirely of independent directors, and require this committee to consider corporate governance matters on behalf of the Board. As our nomination committee is not entirely independent, because it is chaired by Sir John Sunderland, who was formerly an Executive Director, the Audit Committee considers corporate governance matters on behalf of the Board. This committee is composed entirely of independent Directors. The NYSE rules allow a committee other than the Nomination Committee to fulfil this role as long as all of its members are independent directors.
Corporate governance report
The Board remains committed to the principles of good corporate governance and to achieving high standards of business integrity, ethics and professionalism across all our activities. The Board adopted a Statement of Corporate Governance Principles on 16 February 2007 which explains the principles that guide corporate governance for the Group and ensures that the Group acts in the best interests of its stakeholders. The Group also has both a Financial Code of Ethics (that applies to the Chief Executive Officer, Chief Financial Officer and senior financial executives in the Group) and a code of conduct (Our Business Principles) that apply at Board level and to all managers across the Group. All executive members of the Board, the CEC, the Global Leadership Team (the executive managers who report to CEC members), and managers are required to confirm their compliance with Our Business Principles on an annual basis. We have established a confidential, all employee Speaking Up helpline available in most languages, enabling employees to report concerns of breaches of Our Business Principles or usual standards of good behaviour. The Statement of Corporate Governance Principles, Financial Code of Ethics and Our Business Principles are available on the Group’s website, www.cadburyschweppes.com.
Senior Management
The Senior Managers are the Executive Directors appointed to the Board and listed above, the members of the CEC as listed on page 55 under the section titled Chief Executives Committee and Larry Young.
The Board
The Board has 12 members: three Executive Directors, and nine Non-executive Directors all of whom (except the Chairman) are deemed independent under the provisions of the Combined Code. No individual or group of individuals dominates the Board’s decision-making. Collectively, the Non-executive Directors bring a wide range of international experience and expertise as they all currently occupy or have occupied senior positions in industry and public life, and as such each contributes significant weight to Board decisions. Changes to the Board since 1 January 2007 are as follows:
         
 
Rick Braddock
  Non-executive Director   resigned 24 May 2007
Ellen Marram
  Non-executive Director   appointed 1 June 2007
Guy Elliott
  Non-executive Director   appointed 27 July 2007
Rosemary Thorne
  Non-executive Director   resigned 5 September 2007
David Thompson
  Non-executive Director   resigned 8 March 2008
Sir John Sunderland
  Chairman   will resign mid-2008
 
Sir John Sunderland will be succeeded as Chairman by Roger Carr. Biographies of each of the Directors as at the date of this report, can be found on pages 47 and 50.

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Board meetings and attendance: The attendance of the individual Directors at Board and Committee meetings during 2007 was as follows:
                                                 
                            Corporate              
            Strategy             and Social              
    Board     (1 meeting     Audit     Responsibility     Nomination     Remuneration  
    10 meetings     over 2 days)     5 meetings     2 meetings     3 meetings     9 meetings  
 
Sir John Sunderland
    10       1       n/a       2       3       n/a  
Roger Carr
    10       1       3       n/a       3       8  
Todd Stitzer
    10       1       n/a       2       n/a       n/a  
Ken Hanna
    10       1       n/a       n/a       n/a       n/a  
Bob Stack
    10       1       n/a       2       n/a       n/a  
Sanjiv Ahuja
    8       1       n/a       1       1       n/a  
Wolfgang Berndt
    10       1       5       n/a       1       9  
Rick Braddock1 
    5       1       n/a       n/a       n/a       2  
Lord Patten
    8       1       n/a       2       2       n/a  
David Thompson
    10       1       5       2       1       8  
Rosemary Thorne2 
    7       1       4       1       2       5  
Raymond Viault
    10       1       4       n/a       3       6  
Guy Elliott3 
    4       1       1       n/a       n/a       n/a  
Ellen Marram4 
    4       1       n/a       1       n/a       n/a  
 
NB. n/a means that the specified Director is not a member of that Committee, although he or she may attend meetings at the invitation of the Chairman of the Committee.
1   Rick Braddock resigned from the Board on 24 May 2007.
 
2   Rosemary Thorne resigned on 5 September 2007.
 
3    Guy Elliott was appointed a Non-executive Director on 27 July 2007 and has not missed a meeting since his appointment.
 
4   Ellen Marram was appointed a Non-executive Director on 1 June 2007 and has not missed a Board meeting since her appointment.
When Directors have not been able to attend meetings due to conflicts in their schedule, they receive and read the papers for consideration at that meeting, and have the opportunity to relay their comments in advance, and if necessary follow up with the relevant Chairman of the meeting.
Role of the Board
The Board has responsibility for the overall management and performance of the Group and the approval of its long-term objectives and commercial strategy. Whilst the Board has delegated the day to day management of the Group to the Chief Executive Officer, there is a formal schedule of matters reserved for the Board by which the Board oversees control of the Group’s affairs. The Chief Executive Officer is supported by his Executive Committee. The Board is also assisted in carrying out its responsibilities by the various Board committees, including a Standing Committee consisting of any two Directors which deals with routine business between Board meetings; following a formal decision, the Board may also delegate authority to the Committee to facilitate finalising matters within agreed parameters. The work of the Board committees is described on pages 54 and 55.
Senior executives below Board level attend certain Board meetings and make presentations on the results and strategies of their business units. Board members are given appropriate documentation in advance of each Board and Committee meeting. In addition to formal Board meetings, the Chairman and Chief Executive Officer maintain regular contact with all Directors and hold informal meetings with the Non-executive Directors to discuss issues affecting the business.
Independent professional advice: The Board has approved a procedure for Directors to take independent professional advice if necessary, at the Group’s expense (up to a maximum cost of £25,000 p.a. each). Before incurring professional fees the Director concerned must consult the Chairman of the Board or two other Directors (one of whom must be a non-executive). No such advice was sought by any Director during the year.
Group Secretary: The Group Secretary is responsible for advising the Board on all corporate governance matters, ensuring that all Board procedures are followed, ensuring good information flow, facilitating induction programmes for Directors and assisting with Directors’ continuing professional development. All Directors have direct access to the advice and services of the Group Secretary. Any questions shareowners may have on corporate governance matters, policies or procedures should be addressed to the Group Secretary.
Board effectiveness
The roles of the Chairman and Chief Executive Officer are separate and their responsibilities are clearly defined in writing and approved by the Board. The role of the Chairman is to lead and manage the Board. The Chief Executive is responsible for the leadership and day to management of the Group and execution of the strategy approved by the Board.
Induction: On joining the Board, Directors are given background information describing the Group and its activities. They receive an induction pack of information on our business. The pack includes guidance notes on the Group, the Group structure, its operations, information on corporate governance and brokers’ reports. Meetings are arranged with the members of the Chief Executive’s Committee and other senior executives below Board level from each Group function, as well as some of our advisers. Appropriate visits are arranged to our sites. Meetings are also arranged with the Group departments who provide support to the relevant Board Committees the Directors will serve on.

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Continuing professional development: Training seminars are held for Board members at least annually. These formal sessions are in addition to written briefings to the Board on areas of regulatory and legislative change. The seminar held in December 2007 covered the Takeover Code and the new Companies Act.
In 2007 Egon Zehnder undertook a formal and independent evaluation of the Board. The review combined qualitative dialogue and a quantative questionaire to track Board and Committee effectiveness and covered Board dynamics, individual Director contributions and in particular the process relating to the demerger and its attendant implications. Overall, the review concluded that the Board and its committees function effectively and when issues are raised for consultation there is a thorough debate and effective decision making. Governance and Board processes in general are robust. The process of communication to the Board and individual directors has been stated but not, at the time of reporting concluded.
External directorships for Executive Directors
Subject to certain conditions, and unless otherwise determined by the Board, each executive Director is permitted to accept one appointment as a Non-executive Director of another listed company. The Board considers that executive Directors can gain valuable experience and knowledge through such appointments. Details of the fees received by the Directors for external appointments can be found in the Directors’ Remuneration Report on page 65.
Non-executive Directors
The Board reviews the independence of all Non-executive Directors annually and has determined that all such directors (except Sir John Sunderland) are independent and have no cross-directorships or significant links which could materially interfere with the exercise of their independent judgement. David Thompson was considered to remain independent despite having served on the Board for more than nine years, following a thorough review of his continued independence and suitability. He will retired from the Board on 8 March 2008.
We made no payments to third parties for any of the Non-executive Directors’ services.
Senior Independent Non-executive Director: Roger Carr is the Senior Independent Non-executive Director and our Deputy Chairman. Roger’s responsibilities include meeting major shareowners as and when requested and chairing meetings of the Non-executive Directors without executive management or the Chairman being present. A new Senior Independent Non-executive Director will be appointed when Roger Carr becomes Chairman in mid 2008.
Terms of appointment: Other than Sir John Sunderland, who was appointed for an initial term of one year, extended to mid 2008, Non-executive Directors are appointed for an initial term of three years. Thereafter, subject to satisfactory performance, they may serve one or two additional three-year terms, with a thorough review of their continued independence and suitability to continue as Directors being undertaken if they are to remain on the Board for more than nine years. The terms and conditions of appointment for the non-executives are summarised in the Directors’ remuneration report on page 65 and are available on request from the Group Secretary.
Meetings of Non-executive Directors
The Non-executive Directors meet separately (without the Chairman being present) at least once a year principally to appraise the Chairman’s performance. During 2007, they held two such meetings chaired by Roger Carr and attended by all the Non-executive Directors.
Key committees
The terms of reference for all our committees are reviewed on a regular basis by the Board and were last reviewed in February 2008. Committees are authorised to obtain outside legal or other independent professional advice if they consider it necessary to do so. The terms of reference are available on the website at www.cadburyschweppes.com.
Audit Committee
Members: Guy Elliott (Chairman), (David Thompson was Chairman until 8 March 2008), Roger Carr, Wolfgang Berndt, Raymond Viault, Guy Elliott (from 6 December 2007). The Committee consists solely of independent Non-executive Directors, all of whom have extensive financial experience in large organisations. All Committee members, except Guy Elliott held office throughout the year and at the date of this report. The Board has determined that David Thompson is an Audit Committee financial expert as defined by the US Securities and Exchange Commission. Other than the Chairman of the Committee, as described in the Directors’ Remuneration Report. Members do not receive additional fees for serving on the Committee.
At the invitation of the Committee, the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, and Group Secretary, Corporate Finance Director, Director, Financial Control, Director of Business Risk Management, Head of Internal Audit and the external auditor attend meetings. The Director of Group Secretariat attends and is secretary to the Committee. The Committee met five times in 2007, meeting separately with the external auditors in February and July, and with the internal auditors in July. The Chairman also holds preparatory meetings with the Group’s senior management as appropriate prior to Committee meetings. All Directors have access to the minutes of all the Committee’s meetings and are free to attend.
The composition and role of the Audit Committee is reviewed annually against the recommendations made in the Smith Report published in 2003, and complies with all of that Report’s recommendations.
Key duties:
     
>
  Responsible for all accounting matters and financial reporting matters prior to submission to the Board for endorsement;
 
   
>
  To monitor the integrity of the Group’s financial statements and ensure that they meet the relevant legislative and regulatory requirements that apply to them, and are in accordance with accepted accounting standards;
 
   
>
  To review major changes in accounting policies and practices;
 
   
>
  To review the Group’s internal controls and their effectiveness;
 
   
>
  To review the Group’s statements and practices on internal controls (including section 404 Sarbanes-Oxley certification) and other aspects of corporate governance;
 
   
>
  To review the effectiveness of the external audit process, the Group’s relationship with the external auditors including fees, and make recommendations on the appointment and dismissal of the external auditors;
 
   
>
  To consider the annual report on internal audit and the effectiveness of internal control, reviewing the Group’s internal audit process and the audit plan for the following year;
 
   

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>
  To review the provision and scope of audit and non-audit work by the external auditor and the fees charged;
 
   
>
  To receive reports from the Speaking Up programme (established to investigate in confidence complaints from employees and others);
 
   
>
  To receive semi-annual reports on Group legal matters including litigation;
 
   
>
  To receive an annual review of the effectiveness of the Committee;
 
   
>
  To review corporate governance developments in the UK and US and the Group’s response to these developments; and
 
   
>
  To monitor the Group’s risk management and business ethics processes.
In addition to carrying out the above duties, in 2007 the Committee’s agenda included considering the effect of accounting for changes to UK corporate legislation, the separation of American Beverages and work to redefine the role and operation of Internal Audit.
Non-audit services: In line with the requirements of Sarbanes-Oxley, Group policy prohibits the external auditor from carrying out certain categories of non-audit services. The list of such services may only be varied by the Audit Committee.
The external auditor is permitted to undertake some non-audit services, for example due diligence activities associated with potential acquisitions or disposals of businesses by the Group, but these services and their associated fees must be approved in advance by the Committee. Where such services are considered recurring in nature, approval may be sought for the full financial year at the beginning of that year. Approval for other permitted non-audit services has to be sought on an ad hoc basis. Where no Committee meeting is scheduled within an appropriate time frame, the approval is sought from the Chairman of the Committee.
With effect from February 2008, the pre-approval process has been amended to enable the Committee to pre-approve the audit and non audit service categories that can be provided by Deloitte & Touche LLP and agreed monetary amounts for each service category that can be provided by them, subject to a maximum individual engagement value. The service will continue to require specific pre-approval from the Audit Committee or the Audit Committee Chairman. Where requests for pre approvals either do not fall within pre-approved category limits, or where a service value exceeds the maximum individual engagement value. There will continue to be no de minimis amount allowed.
Auditor independence: The Committee ensures that the external auditor remains independent of the Group. In addition, the Committee receives written confirmation from the external auditor as to any relationships which may be reasonably thought to influence its independence. The external auditor also confirms whether it considers itself independent within the meaning of the UK and US regulatory and professional requirements, as well as within the meaning of applicable US federal securities laws and the requirements of the Independence Standards Board in the US.
Other issues: In appropriate circumstances, the Committee is empowered to dismiss the external auditor and appoint another suitably qualified auditor in its place. The reappointment of the external auditor is submitted for approval annually by the shareowners at the Annual General Meeting.
Details of the fees paid to the external auditor in 2007 can be found at Note 6 in the financial statements.
Nomination Committee
Members: Sir John Sunderland (Chairman), Sanjiv Ahuja, Roger Carr, Lord Patten, Raymond Viault.
Wolfgang Berndt, David Thompson, the Chief Executive Officer and Chief Human Resources Officer attend meetings at the invitation of the Chairman of the Committee. The Chief Legal Officer and Group Secretary also attends and is secretary to the Committee. This Committee is empowered to bring to the Board recommendations regarding the appointment of any new executive or Non-executive Director, provided that the Chairman, in developing such recommendations, consults all Directors and reflects that consultation in any recommendation of the Nomination Committee. The Committee ensures that a review of Board candidates is undertaken in a disciplined and objective manner.
The Nomination Committee is also responsible for succession planning for the Board. The Board as a whole is responsible for development plans, including the progressive refreshing of the Board, which are reviewed on an annual basis. The plans involve an annual objective and comprehensive evaluation of the balance of skills, knowledge and experience of the Board. We have recently appointed two new non-executives, and four of the longest serving non-executives have retired or will soon retire. The re-elections proposed at the AGM reflect the Board’s policy on its development.
During 2007, the Committee met three times to review succession planning, the appointment of Ellen Marram and Guy Elliott as new Non-executive Directors, the appointment of a new Chairman and the appointment of non-executives to the board of DPSG, Inc, the beverages business to be de-merged, subject to shareowner approval in 2008. External search consultants were engaged to produce a list of candidates for these appointments. These lists were then reduced to a short list of candidates which were discussed between the Chairman and the other members of the Nomination Committee. The Directors then met the preferred candidates and their nominations were presented to the Board for approval at the next Board meeting.
Remuneration Committee
Details of the Remuneration Committee and its policies, together with the Directors’ remuneration, emoluments and interests in the Company’s share capital, are on pages 57-70.
Corporate and Social Responsibility committee
Members: Lord Patten (Chairman), Sanjiv Ahuja, David Thompson, Bob Stack, Todd Stitzer, Sir John Sunderland. The following directors attend at the invitation of the Chairman; Raymond Viault, Wolfgang Berndt, Roger Carr, Henry Udow.

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This Committee focuses on corporate and social responsibility matters in relation to the environment, employment practices, health and safety, equal opportunities and diversity, community and social investment, ethical trading and human rights, and other aspects of ethical business practice. Lord Patten was appointed Chairman on 1 January 2007. Further details of the
Further details of the Group’s approach to corporate and social responsibility matters can be found in the Company’s biennial Corporate and Social Responsibility report which is available on the internet at www.cadburyschweppes.com or from the Company Secretary.
Chief Executive’s Committee
Todd Stitzer (Chairman), Henry Udow, Jim Chambers, Steve Driver, Ken Hanna, David Macnair, Tamara Minick-Scokalo (from 2 January 2007), Matt Shattock, Bob Stack, Rajiv Wahi, Mark Reckitt (from 2 January 2007) and Chris Van Steenbergen (from 1 July 2007). The Director of Group Secretariat also attends and is secretary to the Committee. Larry Young, President and Chief Executive Officer of American Beverages since October 2007, whilst Larry reports directly to the CEO, due to the planned separation of the beverages business in May 2008 he was not appointed as a member of the CEC
The CEC deals with major operational and management issues including the review of monthly financial results and forecasts, proposals for capital expenditure and major operating issues.
Relations with shareowners
Our shareowners are very important to us. All shareowners receive regular communications from the Group and a full Annual Report is available by election or on request. Regular trading updates are published via the London Stock Exchange and by press release, and appear on our website. Presentations and webcasts on the development of the business are available on the website.
Annual General Meeting (“AGM”)
The Board views the AGM as an opportunity for individual shareowners to question the Chairman, and through him the chairmen of the various Board Committees and other Directors. At the AGM there will be statements by the Chairman and Chief Executive Officer, and all the Directors plan to attend.
Directors are submitted for reappointment by the shareowners at regular intervals. At each Annual General Meeting, not less than one-third of the Directors must retire by rotation. In addition, any Director who has been a Director at either of the two previous Annual General Meetings but who has not retired by rotation, and any Director who was appointed since the last Annual General Meeting, must retire.
Details of the meeting and the resolutions to be proposed together with explanatory notes are set out in the Notice of Meeting which is sent to shareowners. Shareowners attending will be advised of the number of proxy votes lodged for each resolution, in the categories “for” and “against”, together with the number of “votes withheld”. All resolutions will be voted on by poll, the results of which will be announced to the London and New York Stock Exchanges.
Institutional investors
The Group engages with its institutional investors on a day-to-day basis via the Chief Executive Officer and the Chief Financial Officer. The Senior Independent Non-executive Director and other members of the Board are also available to meet major shareowners on request. The Chairman contacts the top 10 shareowners each year with an offer to meet them. As part of his role as the Senior Independent Non-executive Director, Roger Carr is also available to shareowners when contact with the executive Directors or the Chairman may not be appropriate. The Chief Executive Officer and Chief Financial Officer meet with institutional investors in the UK, the US and continental Europe on a regular basis. In June 2007, they hosted a seminar for institutional investors, analysts and brokers in London and New York.
The Directors are supported by our Investor Relations department (IR), which is in regular contact with institutional investors, analysts and brokers. An IR report is produced for each Board meeting: this includes direct feedback from institutional investors provided by our external advisors including Goldman Sachs, UBS and Makinson Cowell. In addition, the Board commissions an annual independent audit of institutional investors’ views on our management and strategy. These measures ensure Board members develop an understanding of the views of our major shareowners.
Internal control
The Directors have responsibility for the system of internal control that covers all aspects of the business and is part of an ongoing risk management process. In recognition of that responsibility, the Directors set policies and seek regular assurance that the system of internal control is operating effectively. Strategic, commercial, operational, financial and EHS risk areas are all within the scope of these activities which also include identifying, evaluating and managing the related risks.
The Directors acknowledge their responsibility for the system of internal control. However, the Directors are aware that such a system cannot totally eliminate risks and thus there can never be an absolute assurance against the Group failing to achieve its objectives or a material loss arising.
The key elements of the system may be described as the control environment, and this is represented by the following:
     
>
  The key business objectives are clearly specified at all levels within the Group’s “Purpose and Values”, a framework for our strategic intent, and “Our Business Principles”, a set of guidelines on legal compliance and ethical behaviour, are distributed throughout the Group;
 
   
>
  The organisation structure is set out with full details of reporting lines and accountabilities and appropriate limits of authority for different processes;
 
   
>
  Procedures to ensure compliance with external regulations;
 
   
>
  The network of disclosure review committees which exists throughout the Group (described below);
 
   
>
  Procedures to learn from control failures and to drive continuous improvement in control effectiveness;
 
   
>
  A wide range of corporate policies deal, amongst other things, with control issues for corporate governance, management accounting, financial reporting, project appraisal, environment, social responsibility, health and safety, information technology, and risk management generally;
 
   
>
  Individual business units operate on the basis of multi-year contracts with monthly reports on performance and regular dialogues with Group senior management on progress;

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>
  On an annual basis the CEC, Audit Committee and then the Board consider and agree the major risks facing the business and these risks are used to focus and prioritise risk management, control and compliance activities across the organization. The key risks facing the Group are summarised on pages 25 to 27;
 
   
>
  Various internal assurance departments, including Group Audit, carry out regular reviews of the effectiveness of risk management, control and compliance processes and report their findings to the business unit involved as well as to Group management and the Audit Committee; and
 
   
>
  The Audit Committee approves plans for control self-assessment activities by business units and regions as well as the annual Group Audit activity plan. The Committee also deals with significant issues raised by internal assurance departments or the external auditor.
The Board’s annual review of the system of internal control has not identified any failings or weaknesses which it has determined to be significant, and therefore no remedial actions are necessary. Accordingly, the Directors confirm that in compliance with principle C.2 of the Combined Code, the system of internal control for the year ended 31 December 2007 and the period up to 4 March 2008 has been reviewed in line with the criteria set out in the Turnbull guidance currently applicable.
The management of all forms of business risk continues to be an important part of ensuring that we continue to create and protect value for our shareowners. The processes involved call for the identification of specific risks that could affect the business, the assessment of those risks in terms of their potential impact and the likelihood of those risks materialising. Decisions are then taken as to the most appropriate method of managing them. These may include regular monitoring, investment of additional resources, transfer to third parties via insurance or hedging agreements and contingency planning. For insurance, there is a comprehensive global programme which utilises an internal captive structure for lower level risks and the external market only for cover on major losses. Hedging activities relate to financial and commodity risks and these are managed by the Group Treasury and Procurement departments with external cover for the net Group exposures (see pages 41 to 43).
All business units are required to regularly review their principal business risks and related strategies (i.e. the chosen management methods). The internal assurance departments and other Group functions report on any further business risks evident at a regional, global or corporate level. Regional and global status reports assessing the extent to which all major risks have been effectively mitigated are prepared every six months and are reviewed by the Audit Committee. A structure of central Group and regional risk and compliance committees came into operation from January 2007.
The Group also established in 2002 a network of disclosure review committees (DRC) throughout the organisation. The Group DRC, chaired by the Chief Legal Officer and comprising senior executives at and below Board level, reviews financial and trading statements and releases, and the verification process which underpins these. Meetings are attended by the Group’s external auditors, and UK and US legal advisors. It ensures that such statements and releases are accurate and complete and comply with all relevant legislation and regulation. Each region and function is required to have its own DRC reporting to the Group DRC to ensure that interim and full year financial reporting is accurate and that all matters which may be material to the Group as a whole have been reported to the Board. The Group DRC reports its findings to the Audit Committee and through that Committee to the Board.
At the year end, the Group’s only significant associate is Camelot, which is managed in line with its shareholder agreement.
The Group is subject to the requirements of the US Sarbanes-Oxley Act as a result of the listing of its American Depository Receipts (ADRs) on the New York Stock Exchange. See page 80 for Managements Annual Report on Internal Control over Financial Reporting.
The Board’s review of the system of internal control has not identified any failings or weaknesses which it has determined to be significant, and therefore no remedial actions are necessary. Accordingly, the Directors confirm that in compliance with principle C.2 of the Combined Code, the system of internal control for the year ended 31 December 2007 and the period up to 4 March 2008 has been reviewed in line with the criteria set out in the Turnbull guidance currently applicable.
See “Item 15: Controls and Procedures” for information regarding the Group’s disclosure controls and procedures and the Group’s internal control over financial reporting as defined under the Sarbanes-Oxley Act and related rules promolugated by the SEC.

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MANAGEMENT COMPENSATION
This report describes the current arrangements for the remuneration of executive Directors and, where relevant, other Board members and senior executives, as agreed by the Remuneration Committee (the Committee) in 2007. Except as detailed below or as explained in the AGM notice posted to shareowners with this document, these arrangements are likely to continue to apply in future years, unless there are specific reasons for change, in which case shareowners will be informed appropriately.
This report complies with the requirements of the Companies Act 2006 and of the Combined Code.
The Board has delegated to the Committee authority to review and approve the annual salaries, incentive arrangements, service agreements and other employment conditions for the executive Directors, and to approve awards under our share based plans (see page 66). The Committee is tasked with ensuring that individual rewards are linked to performance and aligned with the interests of the Company’s shareowners. This requires that cost effective packages are provided which are suitable to attract and retain executive Directors of the highest calibre and to motivate them to perform to the highest standards. The Committee also oversees remuneration arrangements for our senior executives to ensure they are also aligned with shareowner interests. The terms of reference of the Committee are available for inspection on our website.
Changes to reward arrangements
There were no changes to reward arrangements in 2007, but in line with previous commitments and in the light of the separation of the Americas Beverages business, the Committee undertook a fundamental review of remuneration policy and all incentive plans for submission to shareowners for approval in 2008. Following the detailed review of our existing plans a number of changes have been made to:
     
>
  Ensure that awards are more closely aligned with the Group’s strategic objectives and shareowner value creation and enhance relevance by introducing new and more stretching performance measures;
 
   
>
  Strengthen the link with shareowner value creation by referencing a more industry focused peer group; and
 
   
>
  Simplify the arrangements to make them more relevant to participants and to shareowners.
Remuneration Committee members and advisers
In 2007 the Committee consisted of:
     
Wolfgang Berndt
  (Chairman of the Committee from 24 May 2007)
Rick Braddock
  (resigned 24 May 2007)
Roger Carr
   
David Thompson
  (resigned 8 March 2008)
Rosemary Thorne
  (resigned 5 September 2007)
Raymond Viault
  (appointed 16 February 2007)
All are independent Non-executive Directors, and all were members of the Board and Committee at the year-end other than as indicated. No other person was a member of the Committee at a time when any matter relating to the executive Directors’ remuneration for 2007 was considered.
The Committee met nine times to consider and approve, amongst other things:
     
>
  The Directors’ remuneration report for 2006;

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>
  Proposed salary increases and changes to other compensation elements of the executive Directors’ remuneration;
 
   
>
  AIP and share based grants to the executive Directors and members of the Chief Executive’s Committee;
 
   
>
  A review of our share plan arrangements;
 
   
>
  Performance measures, weights, targets and allocation guidelines for share based remuneration;
 
   
>
  Senior Executive Remuneration Review; and
 
   
>
  Effects of the separation of Americas Beverages on the share plans.
No Committee member has any personal financial interest (other than as a shareowner), conflicts of interest arising from cross-directorships, or day-to-day involvement in running the business. Other Directors and employees who attended some or all of the meetings and who provided material advice or services to the Committee during the year were:
     
Sir John Sunderland
  Chairman
Todd Stitzer
  Chief Executive Officer
Bob Stack
  Chief Human Resources Officer
Ken Hanna
  Chief Financial Officer
Hester Blanks
  Group Secretary to 30 September 2007
Don Mackinlay
  Global Remuneration and Benefits Director
John Mills
  Director of Group Secretariat and Secretary to the Committee
Liz Spencer
  International Rewards Director
Henry Udow
  Chief Legal Officer and Group Secretary from 1 October 2007
Hester Blanks, Don Mackinlay, John Mills, Liz Spencer and Henry Udow were appointed by the Company and have the appropriate qualifications and experience to advise the Committee on relevant aspects of our policies and practices, and on relevant legal and regulatory issues. The Company appointed, and the Committee sought advice from, Slaughter and May and the Committee appointed and sought advice from PricewaterhouseCoopers LLP in respect of the changes to reward arrangements. Representatives from PricewaterhouseCoopers LLP have attended meetings of and provided advice to the Committee. This advice included information on the remuneration practices of consumer products companies of a size and standing similar to those of the Company, including competitors and other businesses which trade on a worldwide basis.
The Committee also invited Deloitte &Touche LLP(‘Deloitte’) to provide a one-off, independent review of proposed changes to reward arrangements, from a best practice and compliance perspective. Deloitte are also the Company’s Auditors, but carried out the terms of their engagement within the scope of UK and US independence standards on the provision of non-audit services to audit clients, and following approval from the Audit Committee.
Slaughter and May has advised the Committee on legal and regulatory issues and has also provided advice on a broad range of legal issues to the Group during 2007.
PricewaterhouseCoopers LLP also provided a broad range of tax, share scheme and advisory services to the Group during 2007.
Remuneration policy principles
Our remuneration policy for executives, including executive Directors, is based on the following core principles:
     
>
  Basic salary between median and upper quartile of the Company’s comparator group and at upper quartile for consistently strong or outstanding individual performance ;
 
   
>
  A portfolio of incentives and rewards balance the achievement of short and long-term business objectives;
 
   
>
  Payments under the performance related elements of our incentive plans based on the measurable delivery of widely used and understood metrics (calculated at constant currency);
 
   
>
  Total remuneration potential designed to be competitive in the relevant market, thereby enabling us to attract and retain high calibre executives;
 
   
>
  Significant opportunities to acquire Cadbury Schweppes shares, consistent with building a strong ownership culture; and
 
   
>
  Executive Directors expected to meet a share ownership requirement set at four times base salary.
Overview of remuneration elements for executives including executive Directors
             
Element   Objective   Performance period   Performance conditions for awards
 
Base salary
(see page 61)
 
  Reflects market value of role and individual’s skills and experience   Not applicable
 
 
  Reviewed annually, following external benchmarking and taking into account individual performance and the increases awarded to other employees
 
           
Annual Incentive Plan
(AIP)
(see page 60)
 
  Incentivises delivery of performance goals for the year     One year
 
 
 
  Award subject to achievement of revenue and underlying economic profit (UEP) targets for the year prior to 2008. For 2008 awards, performance targets are based on a matrix requiring simultaneous improvement in revenue growth and trading margin. For 2007 and 2008, there is also an element related to key performance indicators and personal objectives. From 2009, performance targets for awards will be based 80% on a revenue/margin matrix and 20% on non-financial measures
 
           
Bonus Share Retention Plan (BSRP) Note: This is a voluntary investment programme
(see page 60)  
  Incentivises sustained annual growth Aids retention of executives Supports and encourages share ownership   Three years
 
 
 
  Basic award and an additional match subject to continued employment and (prior to 2008) to achievement of compound annual growth in aggregate UEP. From 2008, performance targets are based on a matrix requiring simultaneous improvement in revenue growth and trading margin

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Element   Objective   Performance period   Performance conditions for awards
 
Long Term Incentive Plan
(LTIP)
(see page 61)
  Incentivises long-term value creation Aids of executives retention   Three years   Prior to 2008, the performance measures were weighted 50% on Total Shareholder Return (TSR) ranking relative to an international peer group and 50% on compound annual growth in aggregate underlying earnings per share (UEPS). From 2008, performance targets are based on a matrix requiring simultaneous improvement in Return On Invested Capital (ROIC) and UEPS
Whether particular performance conditions are met is assessed with reference to our Annual Accounts or to external data which is widely available. 2008 performance targets assume the separation of Americas Beverages with effect from 1 January 2008. These methods have been chosen as they are or can be independently audited. Remuneration received in respect of each of these elements by the executive Directors is shown on pages 66 to 68. Directors and executives also have interests in Discretionary Share Option Plans granted in previous years see page 68.
Balance between fixed and variable pay
Around two-thirds of each executive Director’s remuneration is variable and is linked to performance. The performance conditions for each variable element are the same for each executive Director.
Share-based awards and dilution
We ensure that the aggregate of all share-based awards does not exceed the guidelines laid down by the Association of British Insurers (ABI). These guidelines provide that options issued to employees under the Company’s all employee schemes should not exceed an aggregate amount equal to 10% of the Company’s issued share capital, and options issued to employees under the Company’s discretionary schemes should not exceed 5% of such sum. The available dilution capacity on this basis expressed as a percentage of the Company’s total issued ordinary 12.5p share capital on the last day of each of the last five financial years was as follows:
                                         
Outstanding capacity   2003   2004   2005   2006   2007
 
For all employee Schemes
    4.66 %     4.53 %     4.58 %     5.27 %     6.42 %
 
For discretionary Schemes
    1.97 %     1.75 %     1.74 %     2.36 %     3.38 %
 
Performance graph
The following graph shows the Company’s performance measured by total shareowner return (TSR) for the five years to 31 December 2007 compared with the TSR performance of the FTSE 100 companies over the same period. TSR is the product of the share price plus reinvested dividends. The FTSE 100 has been selected for this comparison because this is the principal index in which the Company’s shares are quoted. The graph has been prepared in accordance with the Companies Act 2006 and is not an indication of the likely vesting of awards granted under any of the Company’s incentive plans. In particular, it is not the basis on which we measure LTIP TSR performance which is measured against a more appropriate and consistently demanding peer group.
Historical TSR performance growth in the value of a hypothetical £100 holding over five years. FTSE 100 comparison based on 30 trading day average values
(PERFORMANCE GRAPH)
Service contracts
All executive Directors have contracts which are terminable by the Company giving one year’s notice, or by the executive Director giving six months’ notice. These contracts expire at the end of the month in which the executive Director attains age 65, although where the Director is a member of a Company pension plan, their normal retirement age for the purposes of their membership of those plans is 60. The contracts include provisions on non-competition and non-solicitation. These provisions state that if the executive Director leaves voluntarily he will not, for a period of one year after leaving, be engaged in or concerned directly or indirectly with a predetermined list of companies which are in competition with us. Also, the executive Director agrees for a period of two years after termination of employment not to solicit or attempt to entice away any employee or Director of the Company. If any executive Director’s employment is terminated without cause, or if the executive Director resigns for good reason, payment of 12 months’ base salary and target AIP will be made, together with

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benefits for up to 12 months, or for a shorter period if the executive Director secures new employment with equivalent benefits. If it is not possible or practical to continue benefits for one year they will be paid in cash. There would be no special payments made after a change in control. The BSRP and LTIP provisions which apply on a change of control or termination of employment are shown in the relevant sections of this report.
Under their secondment arrangements, Bob Stack and Todd Stitzer are entitled to six months’ employment with their employing company in the USA if there are no suitable opportunities for them when their secondments end. All the executive Directors’ contracts are 12 month rolling contracts, and accordingly, no contract has a fixed or unexpired term. All the executive Directors’ contracts are dated 1 July 2004 except for Ken Hanna’s, which is dated 1 March 2004.
Salaries and benefits in kind for executive Directors
In setting the base salary of each executive Director, the Committee takes into account market competitiveness and the performance of each individual executive Director, any changes in position or responsibility and pay and conditions throughout the Group. This structure takes account of the reward structure in place for executives below Board level, and that used by comparable companies, which for these purposes are FTSE 100 and global food and beverage companies with broadly similar market capitalisation or turnover or both, significant international exposure and geographic relevance who manufacture and brand food, beverage or tobacco products. In addition to base salary, the executive Directors also receive benefits in kind. In 2007, the rate of base salary increases for executive Directors was between 4.5% and 6.1% . These included adjustments relating to changing circumstances. Salaries received by the executive Directors in the 2007 financial year are shown on page 66. Salaries paid to Todd Stitzer and Bob Stack are paid in US dollars, and the sterling amounts shown in this report have been calculated at the average exchange rate for 2007.
Annual Incentive Plan (AIP)
Annual incentive targets are set each year to take account of current business plans and conditions, and there is a threshold performance below which no award is paid. AIP awards are based on financial tests, subject to appropriate adjustments, and achievement against key performance indicators and personal objectives as determined by the Committee. Executive directors are eligible to receive up to 200% of base salary based upon a combination of quantitative financial measures, key performance indicators and personal objectives as determined by the committee for each plan year. In 2007, awards were based on the delivery of underlying economic profit (UEP), defined as underlying profit from operations less a charge for the weighted average cost of capital, and growth in revenue, both key elements of the annual contract. If the Group’s trading margin was below the contracted level, the revenue element of the award was reduced at all levels of performance except at the threshold level. Furthermore, if targets were only achieved at the expense of lowering returns on total invested capital, the Committee reserved the right to reduce AIP payments accordingly. For 2007, the maximum award was weighted 45% on the delivery of UEP, 30% on the growth in revenue and 25% on key performance indicators and personal objectives. For 2007 and 2008, the key performance indicators and personal objectives element of AIP are not eligible for inclusion in the BSRP.
AIP awards to executive Directors for 2006 and 2007 were as follows:
                                 
            Percentage of total relating to:  
                            Key  
                            performance  
    Total (as a                     indicators  
    % of base             Revenue     and personal  
    salary)     UEP     growth     objectives  
 
2006
    74.2 %     58.1 %     41.9 %   Nil
2007
    155.3 %     33.7 %     34.1 %     32.2 %
 
AIP received by the executive Directors in respect of the 2007 financial year is shown on page 66.
Following the detailed remuneration review the only change to the AIP for the financial awards from 2008 will be in respect of performance measures. For 2008, financial performance targets for awards are based on a matrix structured to incentivise simultaneous and strong improvement in revenue growth and trading margin. It has been set to reward management’s performance in achieving the targets set out in the company’s Vision into Action plan for the Confectionery business announced in June 2007. The Committee will ensure that environmental, social and governance (ESG) risks are not raised by the incentive structure inadvertently motivating irresponsible behaviour.
The financial performance matrix is structured to incentivise the simultaneous attainment of strong growth in revenue whilst achieving significant improvements in trading margins. To achieve threshold vesting, (20% of AIP) performance will have to be significantly above the prior year. From 2009, performance targets for awards will be based 80% on revenue/margin matrix and 20% on non-financial measures which can include ESG issues.
Disclosure of the performance matrix is not provided due to commercial sensitivity. Retrospective disclosure in the Remuneration Report will confirm percentage of overall awards achieved from both the matrix and personal objectives.
Bonus Share Retention Plan (BSRP)
The BSRP is a bonus deferral plan and an essential element of our total reward programme and has been a key factor in helping and encouraging executives to meet the share ownership guidelines that we apply. These guidelines are at the top end of such requirements in the FTSE 100, with executive Directors expected to meet a share ownership requirement set at four times base salary and a range for all senior executives in the business from one to three times salary, depending on their level of seniority. New appointments are given a period of three to five years in which to satisfy this requirement.
The BSRP is available to a group of approximately 115 senior executives including the executive Directors and aims to encourage participants to reinvest their AIP award into the Company’s shares thereby more closely aligning the interests of management and shareowners. There is a risk of forfeiture during the deferral period and no dividends or dividend equivalents are paid.

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The number of matching shares that will be provided for grants made in 2007 is as follows:
     
Absolute compound annual growth in   Matching shares as a % of shares
aggregate UEP over the three year   invested awarded at the end of
performance period equivalent to:   the period:
 
below 4%
  40% (threshold)
4 %
  40 %
8 %
  70 %
12% or more
  100% (maximum)
 
There is a straight line sliding scale between those percentages. UEP is measured on an aggregate absolute growth basis, the levels of growth required to achieve the highest levels of share match being demanding. For awards made before 2006, UEP performance was measured on a real basis, with a stepped vesting scale between the threshold and maximum. Awards under the BSRP will vest in full following a change in control but only to the extent that performance targets have been met at the time of the change in control unless the Committee decides that the awards would have vested to a greater or lesser extent had the performance targets been measured over the normal period. The 2006–2008 and 2007–2009 cycles are currently expected to result in around two-thirds of the matching shares available being awarded. AIP awards received by the executive Directors in respect of the 2007 financial year and reinvested into the BSRP are shown on pages 66 and 68.
Following the detailed remuneration review the only change to the BSRP for awards from 2008 will be in respect of performance measures for matching awards, which are based on simultaneous improvement in revenue growth and trading margin. The performance matrix reflects a longer term view to 2010 and has been calibrated with reference to the Vision into Action plan forecasts for the Confectionery business and is as follows:
                                                 
Trading Margin      
Growth pa   NSV growth p.a. (CAGR 2008–2010)  
(bp)   0.0%   4.0%   4.5%   5.0%   5.5%   6.0%
 
0
    40 %     40 %     40 %     40 %     40 %     40 %
60
    40 %     40 %     45 %     50 %     55 %     60 %
75
    40 %     50 %     55 %     60 %     65 %     70 %
90
    40 %     60 %     65 %     70 %     75 %     80 %
110
    40 %     70 %     75 %     80 %     85 %     90 %
125
    40 %     80 %     85 %     90 %     95 %     100 %
There is a straight line sliding scale between these percentages once threshold of NSV growth of 4% p.a. and trading margin growth of 60 bp p.a. has been exceeded. As in previous years, 40% of matching award vests after three years based on service with up to 60% then dependent on performance. The service match is included in the vesting table shown above.
The Committee will review the matrix each year for each new performance period to ensure that the calibration remains appropriate in terms of balancing the motivation of participants with the interests of shareowners.
Long Term Incentive Plan (LTIP)
Around 80 senior executives (including the executive Directors) are granted a conditional award of shares under the LTIP in 2007. This award recognises the significant contribution they make to shareowner value and is designed to incentivise them to strive for sustainable long-term performance. Details of the Directors’ LTIP interests are set out in the table on page 67.
In accordance with ABI guidelines participants also accumulate dividend equivalent payments on the conditional share awards (which will only be paid to the extent that the performance targets are achieved). The dividend equivalent payments are then used to buy shares for the participants on the vesting date.
The following companies were selected as comparator companies (the “Comparator Group”) to reflect the global nature of our business:
         
UK based companies   US based companies    
 
Allied Domecq# 
  Campbell Soup   Procter & Gamble
Associated British Foods
  Coca-Cola   Sara Lee Corp
Diageo
  Coca-Cola Enterprises+   Wrigley+
Northern Foods
  Colgate-Palmolive    
Reckitt Benckiser
  Conagra+   European based companies
Scottish & Newcastle+
  General Mills   CSM+ (Netherlands)
Six Continents*
  Heinz   Danone (France)
Tate & Lyle
  Hershey Foods   Lindt & Sprungli+ (Switzerland)
Unilever
  Kellogg   Nestlé (Switzerland)
Uniq*
  Kraft Foods+   Pernod Ricard (France)
Whitbread*
  Pepsi Bottling Group+   Suedzucker* (Germany)
 
  PepsiCo    
 
*   indicates a company dropped from the Comparator Group in 2004
 
+   indicates a company added to the Comparator Group for 2004 onwards
 
#   indicates a company dropped from the Comparator Group in 2005 due to it no longer being a publicly quoted company
Awards under the LTIP (both before and after 2008) will vest in full following a change in control, but only to the extent that performance targets have been met at the time of the change in control unless the Committee decides that the awards would have vested to a greater or lesser extent had the performance targets been measured over the normal period. The status as at 1 January 2008 of each LTIP cycle in respect of which awards could have vested at the date of this report is shown below, on the basis of our performance against the measures explained above. LTIP awards received by executive Directors are shown on page 68.
                         
    Performance     TSR percentile     Current status  
    against     ranking as at     (% of maximum  
Cycle   UEPS target     1 January 2008     award)  
 
2002–2004
  hurdle met     30     lapsed
2003–2005
  hurdle met     28     extended
2005–2007
  52.9% payout   58.0% payout   55.4% payout
 
The 2006–2008 and 2007–2009 cycles are currently expected to pay around half of the maximum award available.

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Following the detailed remuneration review, the changes to the LTIP for awards from 2008 will be as follows:
         
 
  >   Maximum potential award of 300% of base salary for all executive directors
 
       
 
  >   However, for 2008 and until further notice, the increased quantum for the CEO will be limited to 200% (previously 160%). Other main board directors quantum remains unchanged at 160%
 
       
 
  >   Performance targets based on simultaneous improvement in ROIC and UEPS
 
       
 
  >   Participation extended to an additional 40 executives
We have replaced relative TSR with a UEPS and ROIC matrix for the following reasons:
         
 
  >   To align incentives with our strategic agenda and financial plan that underpin the Vision into Action plan
 
       
 
  >   There is a strong correlation between combined UEPS and ROIC improvement with shareowner value
 
       
 
  >   UEPS and ROIC have clearer line of sight for management
 
       
 
  >   The relative TSR condition has not historically reflected the underlying business performance in a consistent manner
Key features of the LTIP
         
    Awards made prior to 2008   Awards made for 2008 onwards
 
Face value of conditional share award made to executive Directors
  80% of base salary (before 2004) 120% of base salary (2004 and 2005) 160% of base salary (2006 onwards to reflect elimination of annual share option grants)   CEO: 200% of base salary (2008 and until further notice) Main Board Directors: 160% of base salary Maximum potential award of 300%
 
       
Performance
conditions
  Prior to 2004, award was based on TSR relative to the Comparator Group with a UEPS hurdle. For 2004 to 2007, half of the award is based on growth in UEPS over the three year performance period. The other half of the award is based on TSR relative to the Comparator Group   Awards vest subject to a matrix of UEPS growth and improvement in ROIC
 
       
UEPS vesting
requirement*
  Prior to 2004, for the award to vest at all UEPS must have grown by at least the rate of inflation as measured by the Retail Price Index plus 2% per annum (over three years).For 2004 to 2007, the extent to which some, all or none of the award vests depends upon annual compound growth in aggregate UEPS over the performance period   Vesting is dependent on combined growth in UEPS and ROIC improvement. Minimum growth in UEPS of 13% p.a. and ROIC increase of 20 b.p. p.a. required for threshold vesting of 20%. Maximum vesting is possible with UEPS growth of between 19% p.a. and 23% p.a., providing ROIC increase is between 120 basis points p.a. and 80 basis points p.a. respectively  
 
       
TSR vesting
requirement+
  The extent to which some, all or none of the award vests depends on our TSR relative to the Comparator Group   No longer applies

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    Awards made prior to 2008   Awards made for 2008 onwards
 
Re-tests
  Prior to 2004, if the TSR performance criteria were not satisfied in the initial three year performance period, the award was deferred on an annual basis for up to three years until the performance is achieved over the extended period (i.e. either four, five or six years). If the award does not vest after six years, then it lapses. From 2004 onwards, there are no re-tests and the award will lapse if the minimum requirements are not met in the initial three year performance period   No re-tests and the award will lapse if the minimum requirements are not met in the initial three year performance period
 
       
Comparator Group
  Prior to 2004, a weighting of 75% was applied to the UK companies in the Comparator Group, and 25% to the non- UK based companies. From 2004 onwards, there is no weighting between UK and non-UK companies   Not applicable
 
*   For cycles beginning in 2004 and 2005, threshold vesting was 40% of the award, and performance ranges for the growth in UEPS were expressed in post-inflation terms. Threshold vesting is 30% for cycles starting in 2006 and 2007. Between threshold and maximum vesting the award vests proportionately to the growth in UEPS. UEPS is a key indicator of corporate performance, and is measured on an absolute basis. Sustained performance is therefore required over the performance cycle as each year counts in the calculation.
 
+   The TSR measure is used for all awards made prior to 2008. It is measured according to the return index calculated by Datastream on the basis that a company’s dividends are invested in the shares of that company. The return is the percentage increase in each company’s index over the performance period. Threshold vesting is at the 50th percentile ranking relative to the Comparator Group; maximum vesting is at the 80th percentile, and there is a straight line sliding scale between these percentiles. For cycles beginning in 2004 and 2005, threshold vesting was 40% of the award. Threshold vesting is 30% for cycles starting in 2006 and 2007. Maximum vesting is 100% for all cycles.

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The table below shows the percentage of the award which will vest if performance is as shown:’
                                                 
ROIC      
Increase   UEPS growth p.a. (CAGR 2008–2010)  
bp pa   13.0%   15.0%   17.0%   19.0%   21.0%   23.0%
 
20
    20 %     23 %     26 %     30 %     40 %     50 %
40
    23 %     40 %     50 %     50 %     60 %     70 %
60
    26 %     50 %     60 %     70 %     80 %     90 %
80
    30 %     50 %     70 %     80 %     90 %     100 %
100
    30 %     50 %     70 %     90 %     100 %     100 %
120
    30 %     50 %     70 %     100 %     100 %     100 %
 
The Committee will review the matrix each year for each new performance period to ensure that the calibration remains appropriate in terms of balancing the motivation of participants with the interests of shareowners.
Discretionary Share Option Plans (DSOPs)
DSOP grants are not currently part of the Group’s incentive programme and a grant will not be made unless it would be appropriate in the circumstances or general market conditions change. No rights to subscribe for shares or debentures of any Group company were granted to or exercised by any member of any of the Director’s family during 2007. The exercise of all existing DSOPoptions which apply to executive Directors are subject to real compound annual growth in UEPS being at least 4% for half the award to vest and 6% real growth for the entire award to vest over three years, measured by comparison to the UEPS in the year immediately preceding grant. If the performance condition is not met within the first three years, the option will be re-tested in year five with actual UEPS growth in year five measured in relation to the original base year.
The growth in UEPS for these purposes is calculated on a ‘point to point’ basis, using a formula which incorporates the UEPS for the year prior to the start of the first performance period and for the last year of the performance period based on a weighted average inflation index. The UEPS is measured on a real basis after allowing for inflation. Options granted in 2005 met their performance targets and vested in full. All options granted prior to 2005 achieved their UEPS targets and vested in full.
Other share option plans
Each executive Director also has the opportunity to participate in the savings-related share option scheme operated in the country in which his contract of employment is based. Further details on these share plans are provided in Note 26 to the financial statements.

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Retirement benefits
We operate a number of retirement benefit programmes throughout the world. Such benefits reflect local competitive conditions and legal requirements.
No current executive Director participates in the UK plans. Ken Hanna is not a member of the Group’s pension schemes and receives a cash allowance of 30% of his base salary in lieu of a pension contribution, disability benefits and life cover. Pension arrangements in the US provide that all of any incentive awards under the AIP for all employees are pensionable, in line with normal practice in that country. Bob Stack and Todd Stitzer are members of the US Supplemental Executive Retirement Plan (SERP) as well as the US cash balance pension plan and excess plan. Further details of these arrangements are set out on page 68.
Executive Directors’ outside appointments
We recognise the benefits to the individual and to the Company of involvement by executive Directors as non-executive Directors in companies outside the Group. Subject to certain conditions, and with the approval of the Board, each executive Director is permitted to accept only one appointment as a Non-executive Director in another company. The executive Director i s permitted to retain any fees paid for such service. Details of fees received by executive Directors are as follows:
                 
 
Ken Hanna
  £ 54,000     (Inchcape plc)
Bob Stack
  £ 58,850     (J Sainsbury plc)
Todd Stitzer
  £ 70,000     (Diageo plc)
 
Chairman and Non-executive Directors
Sir John Sunderland, Non-executive Chairman, is provided with a car and chauffeur. As announced in February 2008, Roger Carr will succeed him as Chairman of the Group with effect from the middle of 2008.
Unless otherwise determined by the Board, Non-executive Directors are appointed for terms of three years with a maximum term of nine years. Fees for Non-executive Directors are determined by the Board within the limits set by the Articles of Association. To ensure that the interests of the Non-executive Directors are aligned with those of the shareowners, all Non-executive Directors (except Sir John Sunderland) have chosen to utilise a percentage of their fees (between 50% and 100%) to purchase shares in the Company, which are bought within five business days of each relevant payment. Each Non-executive Director has undertaken to hold such shares during the term of his or her appointment. The Non-executive Directors do not have service contracts with the Company. Fees for the independent Non-executive Directors were reviewed in 2007 but were not increased.
                         
Non-executive   Date of initial appointment to Board   Commencement date of current term   Expiry date of current term
 
Sanjiv Ahuja
  19 May 2006   19 May 2006   19 May 2009
Wolfgang Berndt
  17 January 2002   18 February 2008   18 February 2011
Roger Carr
  22 January 2001   26 November 2006   25 November 2009
Guy Elliott
  27 July 2007   27 July 2007   27 July 2010
Ellen Marram
  1 June 2007   1 June 2007   1 June 2010
Lord Patten
  1 July 2005   1 July 2005   1 July 2008
Sir John Sunderland
  5 May 1993   24 August 2006   22 May 2008
David Thompson
  9 March 1998   16 February 2007   Retired on 8 March 2008
Raymond Viault
  1 September 2006   1 September 2006   1 September 2009
 

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Directors’ remuneration tables
In the following tables, references to CEC members mean the individuals who are members of the Chief Executive’s Committee (our senior management) but who are not executive Directors. Two CEC members left the Group in 2007 and three new members were appointed. Remuneration shown for the CEC includes remuneration paid to the CEC members who left the Group as part of their termination packages. In 2007, there were a maximum of 11 individuals at any one time who were members of the CEC but who were not executive Directors.
Directors’ remuneration summary (table one)
                 
    2007     2006  
    £000     £000  
 
Total remuneration:
               
Fees as Directors
    960       902  
Salaries and other benefits
    3,300       3,198  
Annual Incentive Plan/Bonus Share Retention Plan awards (a)
    3,566       2,019  
Gains on share plans
    2,196       3,263  
Pensions paid to former executive Directors
    34       33  
 
Notes
 
(a)   These amounts relate to the Annual Incentive Plan awards for each year. The total shown includes the service related match to be awarded under the Bonus Share Retention Plan to each Director based on the AIP award which they have invested in 2008 and which will vest (normally) in three years’ time. The performance related matching award is shown in table five.
Executive Directors’ and CEC members’ remuneration (table two)
                                                 
                    Other             2007     2006  
    Base salary     Allowances (a)     benefits (b)     AIP/BSRP (c)     total     total  
    £000     £000     £000     £000     £000     £000  
 
Ken Hanna
    599       205             939       1,743       1,344  
Bob Stack (d)
    459       360       125       912       1,856       1,397  
Todd Stitzer (d)
    862       493       173       1,715       3,243       2,473  
CEC members (f)(g)
    3,319       1,293       838       5,606       11,056       8,294  
 
Directors’ and CEC members’ gains on share plans (table three)
                                         
    BSRP                          
    performance                          
    awards     LTIP awards     Gains on              
    earned in     earned in     exercise of     2007     2006  
    2007     2007     share options     total     total  
    £000     £000     £000     £000     £000  
 
Ken Hanna (e)
    100       426             526       558  
Bob Stack
    78       335       315       728       514  
Todd Stitzer
    144       628             772       949  
Sir John Sunderland
          170             170       1,242  
CEC members (f)
    261       2,136       1,122       3,519       3,301  
 
Notes to tables two and three above
 
(a)   The majority of the amount shown as Allowances for expatriate Directors (Bob Stack and Todd Stitzer) and expatriate CEC members relates to income tax payments. As taxation rates in the US are lower than in the UK, US tax payers are protected from a higher tax burden by means of a tax equalisation programme funded by the Company. Under this programme, we pay an amount equal to the incremental tax resulting from the assignment of individuals to the UK. This ensures that they are not penalised financially by accepting roles of an international nature which would result in higher taxation costs than would have been the case if they had remained in their home country. Due to the nature of taxation payments, some of the amounts shown are in respect of previous financial years which can create distortions when assessing year on year movements. For all Directors and CEC members, Allowances include flexible benefits and car allowances. Ken Hanna’s allowances include an amount equal to 30% of his base salary in lieu of a pension contribution, disability benefits and life cover.
 
(b)   Other benefits include company cars and, for expatriates, housing support and other allowances necessary to ensure that they are not penalised financially by accepting roles of an international nature which result in higher costs than would have been the case if they had remained in their home country.
 
(c)   The total AIP award shown was awarded in respect of 2007 performance and invested in the BSRP on 4 March 2008 by Bob Stack and Todd Stitzer. The AIP and BSRP are described on pages 60 and 61. The amount shown includes the service related matching award to be awarded under the BSRP to each Director and the aggregate for CEC members. The performance related conditional matching awards are shown in table six.
 
(d)   Todd Stitzer’s and Bob Stack’s base salaries are calculated in US dollars as follows: Todd Stitzer – US$1,726,000; Bob Stack – US$919,000.
 
(e)   Ken Hanna was granted a restricted ISAP award in March 2004 over 225,000 shares, 75,000 shares of which vested on 26 March 2007. The mid-market price on that date was £6.48.
 
(f)   For all remuneration, the aggregate amounts shown for the CEC are only those amounts paid to individuals whilst they were CEC members.
 
(g)   In addition, payments were made in connection with the cessation of employment of some CEC members. In 2006, these totalled £395,000 and in 2007 £2,008,000.

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Non-executive Directors’ fees and benefits (table four)
                                         
                    Fee for              
    Other             chairing     2007     2006  
    benefits (b)     Board fee     a committee     total     total  
    £000     £000     £000     £000     £000  
 
Sanjiv Ahuja
          55             55       32  
Wolfgang Berndt
    1       55       8       64       51  
Rick Braddock (a)
          28       3       31       84  
Roger Carr
          105             105       101  
Guy Elliott (a)
          24             24        
Ellen Marram (a)
    12       40             52        
Lord Patten
          55       10       65       51  
Sir John Sunderland
    1       400             401       384  
David Thompson (a)
          55       15       70       66  
Rosemary Thorne (a)
          37             37       51  
Raymond Viault
    10       70             80       24  
 
Notes
 
(a)   Guy Elliott was appointed as a Non-executive Director on 27 July 2007 and Ellen Marram was appointed as a Non-executive Director on 1 June 2007. Rick Braddock resigned as a Director on 24 May 2007, Rosemary Thorne resigned as a Director on 5 September 2007 and David Thompson retired on 8 March 2008.
 
(b)   Other benefits were personal use of a car and chauffeur by Sir John Sunderland and a travel allowance for certain non-executives. None of the non-executives (other than Sir John Sunderland) received any other emoluments during the 2007 financial year.
Executive Directors’ and CEC members’ performance related interests in the Bonus Share Retention Plan (table five)
This table shows the maximum performance related matching award granted to each Director in respect of the investment made by the Director of his AIP award in the BSRP.
                                         
    Maximum     Maximum                     Total of maximum  
    performance related     performance related             Interest in shares     performance related  
    award in respect of     award in respect of     Shares vested in     lapsed in     awards in respect of  
    2004 to 2006     2007 (a)     2007 (b)     2007     2005 to 2007 (c)  
 
Ken Hanna
    152,207             18,226       36,454       97,527  
Bob Stack
    126,263       49,710       14,150       28,301       133,513  
Todd Stitzer
    232,375       93,510       26,208       52,418       247,259  
CEC members
    517,916       304,506       48,892       104,293       723,237  
 
Notes
 
(a)   The monetary value of the service-related awards for previous BSRP cycles is included in the AIP/BSRP awards shown in tables one and two. The interests shown in this table are performance related awards shown at their maximum number. Performance related matching awards are made in March in respect of the previous year’s AIP investment (i.e. in March 2008 for 2007 AIP). Shares purchased by Directors for the 2008–2010 cycle using their AIP investment were due to be acquired on 4 March 2008 at a price of £5.95 per share as follows: Bob Stack – 81,738 shares, Todd Stitzer – 153,755 shares. The service related awards for this cycle are: Bob Stack – 32,695 shares, Todd Stitzer – 61,502 shares.
 
(b)   The mid-market price on 4 March 2005 when the awards were made was £5.07, and on 4 March 2008 (when the awards were due to vest) was £5.49. Qualifying conditions for these awards are set out on pages 60 and 61.
 
(c)   All awards are in shares. Qualifying conditions for the awards shown above have to be fulfilled by 31 December 2010 at the latest.
Directors’ and CEC members’ interests in the Long-Term Incentive Plan (table six)
                                                 
    Interest                             Interest in        
    in shares at                             shares as at        
    31 December     Interest             Interest     31 December     Dividend  
    2006 (or date     in shares     Shares     in shares     2007 (or date     Shares  
    of appointment     awarded in     vested     lapsed of     resignation     awarded and  
    if later) (a)     2007 (b)     (c)     (d)     if earlier) (e)     vesting (c)  
 
Ken Hanna
    354,669       174,540       72,008       57,888       399,313       5,619  
Bob Stack
    396,142       144,638       56,616       121,887       362,277       4,418  
Todd Stitzer
    680,554       272,076       106,110       196,454       650,066       8,280  
SirJohn Sunderland (f)
    346,761             28,654       165,893       152,214       2,236  
CEC members
    1,600,923       844,826       270,349       416,535       1,758,865       21,093  
 
Notes
 
(a)   Interests as at 31 December 2006 are potential interests shown at their maximum number in respect of the extended 2002–2004 and 2003–2005 cycles, and the 2005–2007 and, 2006–2008 cycles.
 
(b)   The interests in shares awarded in 2007 relate to the 2007–2009 cycle. The mid-market price on 29 March 2007 when these awards were made was £5.44. The criteria under which these awards would vest in full are explained on page 63.
 
(c)   Shares due to vest on 4 March 2008 were in respect of the 2005–2007 cycle and (shown separately) shares which were awarded and due to vest in respect of dividends paid during the performance period, in accordance with ABI guidelines. The mid-market price on 4 March 2005 when the awards were made was £5.07, and on 4 March 2008 (when the awards were due to vest) was £5.49.
 
(d)   All interests in shares in respect of the 2002–2004 cycle lapsed at the end of the financial year as did that part of the 2005–2007 cycle which did not vest.

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(e)   Interests as at 31 December 2007 are potential interests shown at their maximum number in respect of the extended 2003–2005 cycle, and the 2006–2008 and 2007–2009 cycles. The current status of each cycle is shown on page 61. At the present time it is anticipated that no cycle will vest at maximum.
 
(f)   Sir John Sunderland’s employment ceased on 24 August 2005 and consequently a proportion of his outstanding LTIP awards lapsed in 2006 and 2007 accordance with the rules of the plan.
 
(g)   All awards are in shares. Qualifying conditions for the awards shown above have to be fulfilled by 31 December 2009 at the latest.
Executive Directors’ pensions and retirement benefit arrangements (table seven)
                                                         
                                                    Transfer  
                                                    value of  
                                                    the increase  
                                            Increase in     in accrued  
                    Transfer     Transfer     Increase     accrued     pension  
            Increase in     value of     value of     in transfer     pension     (net of  
    Accrued     accrued     accrued     accrued     value over     during the     inflation)  
    pension     pension     pension at     pension at     the year, less     year     less  
    at 1 January     during     1 January     1 January     Directors’     (net of     Directors’  
    2008     the year     2008     2007     contributions     inflation)     contributions  
    £000     £000     £000     £000     £000     £000     £000  
 
US pension arrangements
                                                       
Bob Stack
    422       67       4,269       3,326       943       51       518  
Todd Stitzer
    882       155       8,220       6,254       1,966       123       1,149  
 
Notes
 
(a)   As noted on page 65, Ken Hanna receives an amount equal to 30% of his base salary in lieu of a pension contribution, disability benefit and life cover.
 
(b)   The accrued pensions represent the amount of the deferred pension that would be payable from the member’s normal retirement date on the basis of leaving service at the relevant date.
 
(c)   The transfer values have been calculated in accordance with the guidance note GN11: Retirement Benefit Schemes – Transfer values published by the Institute of Actuaries and Faculty of Actuaries, and by reference to investment market conditions at the relevant date. Under the Stock Exchange Listing Rules, the transfer value of the increase in accrued pension has been calculated using investment conditions at the date of retirement.
 
(d)   The aggregate amount set aside in 2007 to provide for pensions and post retirement medical benefits for the executive Directors and CEC members was £1.3 million. This consists of approved pension arrangements of £0.95 million, unapproved pension arrangements of £0.35 million and post medical retirement benefits of £3,624. Arrangements made in US dollars were converted, for the purpose of this table only, at a rate of US$1.985 = £1.
Directors’ and CEC members’ options over ordinary shares of 12.5p each (table eight)
                                                         
                    As at                        
    As at           31 December                        
    1 January 2007           2007                        
Name of   (or date of           (or date of           Market price   Gain made        
Director   appointment           resignation   Exercise   at exercise   on exercise   Exercisable    
and Scheme   if later)   Exercised (d)   if earlier)   price £   date (e) £   £000 (f)   from   to  
 
Ken Hanna
                                                       
SOP94 (a)
    125,000             125,000       4.2475                     27 Mar 2007   26 Mar 2014
SOP04 (b)
    205,000             205,000       4.395                     28 Aug 2007   27 Aug 2014
SOP04 (b)
    200,000             200,000       5.255                     2 Apr 2008   1 Apr 2015
SAYE (c)
    4,699             4,699       3.5160                     1 Feb 2010   31 Jul 2010
 
 
    534,699             534,699                                  
 
Bob Stack
                                                       
SOP94 (a)
    250,000             250,000       4.09                     2 Sep 2003   1 Sep 2010
SOP94 (a)
    250,000             250,000       4.77                     1 Sep 2004   31 Aug 2011
SOP94 (a)
    250,000             250,000       4.825                     24 Aug 2005   23 Aug 2012
SOP94 (a)
    350,000       100,000       250,000       3.515       6.66       315     10 May 2006   9 May 2013
SOP04 (b)
    177,000             177,000       4.395                     28 Aug 2007   27 Aug 2014
SOP04 (b)
    151,500             151,500       5.255                     2 Apr 2008   1 Apr 2015
 
 
    1,428,500       100,000       1,328,500                       315          
 
Todd Stitzer
                                                       
SOP94 (a)
    275,000             275,000       4.77                     1 Sep 2004   31 Aug 2011
SOP94 (a)
    300,000             300,000       4.825                     24 Aug 2005   23 Aug 2012
SOP94 (a)
    500,000             500,000       3.515                     10 May 2006   9 May 2013
SOP04 (b)
    327,000             327,000       4.395                     28 Aug 2007   27 Aug 2014
SOP04 (b)
    284,000             284,000       5.255                     2 Apr 2008   1 Apr 2015
 
 
    1,686,000             1,686,000                                  
 
CEC members (d)
    4,045,126       324,964       3,728,133       3.39       6.62       1,122     13 Sep 2000   25 Nov 2015
 
Notes
 
No   payment was made on the granting of any of these options and none of the terms and conditions relating to these options have been varied.
 
(a)   Share Option Plan 1994.
 
(b)   Share Option Plan 2004.

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(c)   Savings-Related Share Option Scheme 1982.
 
(d)   No options lapsed during the year and no options were granted during the year in respect of Directors. 7,971 options in all-employee plans were granted to CEC members. The exercise price shown is the weighted average exercise price of options exercised in the year.
 
(e)   The market price of an ordinary share on 31 December 2007 (the last dealing day in the financial year) was £6.21. The highest and lowest market prices of an ordinary share in the year were £7.235 and £5.29 respectively.
 
(f)   Where some or all of the shares were sold immediately after the exercise of an option, the gain shown is the actual gain made by the Director or CEC member. If some or all of the shares were retained, the gain is a notional gain calculated using the market price on the date of exercise. When an option was exercised or shares were sold in parts on a number of different days in the year, the gain shown is the aggregate gain from all those exercises.
Share ownership (table nine)
                 
    As at     As at  
    1 January 2007     31 December 2007  
    (or date of appointment     (or date of resignation  
    if later)     if earlier)  
 
Sanjiv Ahuja
    2,287       7,930  
Wolfgang Berndt
    81,439       86,733  
Rick Braddock (d)
    55,152       59,248  
Roger Carr
    47,368       55,792  
Guy Elliott (a)
    1,500       2,356  
Ken Hanna (b)(c)
    499,260       623,617  
Ellen Marram (a)
          1,880  
Lord Patten
    5,448       9,837  
Bob Stack (c)
    838,558       954,441  
Todd Stitzer (c)
    647,244       822,363  
Sir John Sunderland (c)
    939,075       787,594  
David Thompson (d)
    45,610       51,198  
Rosemary Thorne (d)
    9,035       13,135  
Raymond Viault
    9,736       15,372  
CEC members (c) (e)
    1,614,906       2,029,906  
 
Notes
To accurately reflect the share ownership for each Director, as shown in the Register of Directors’ Interests the holdings for each Director in tables eight and nine should be added together.
(a)   Ellen Marram was appointed as a Non-executive Director on 1 June 2007 and Guy Elliott was appointed as a Non-executive Director on 27 July 2007.
 
(b)   Ken Hanna was granted a restricted ISAP award in March 2004 over 225,000 shares, 75,000 shares of which vested on 26 March 2007. The mid-market price on that date was £6.48. Ken Hanna’s shareholding shown above includes 150,000 of these restricted shares, vesting in two tranches of 75,000 shares each in March 2008 and 2009 if he is still employed by the Company at that time.
 
(c)   Holdings of ordinary shares include shares awarded under the BSRP and the all-employee share incentive plan and LTIP shares held in trust.
 
(d)   The following Non-executive Directors retired during the year: Rick Braddock on 24 May 2007, Rosemary Thorne on 5 September 2007. David Thompson retired on 8 March 2008.
 
(e)   Shareholdings of CEC members also include restricted share awards, the release of which is dependent upon specified performance conditions.

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Changes in the Directors’ share interests since the year end (unaudited)
There were the following changes in the Directors’ share interests between 1 January 2008 and 4 March 2008:
Ken Hanna purchased the following shares through participation in the Company’s all-employee share incentive plan: 22 shares on 7 January 2008 at a price of £6.13 per share; 26 shares on 4 February 2008 at a price of £5.67 per share; and 24 shares on 3 March 2008 at a price of £5.63 per share.
The Non-executive Directors elected to surrender part of their Directors’ fees and on 7 January 2008 purchased the following number of shares at a price of £6.13 per share:
         
 
Sanjiv Ahuja
    1,456  
Wolfgang Berndt
    1,334  
Roger Carr
    2,122  
Guy Elliott
    1,089  
Ellen Marram (a)
    1,432  
Lord Patten
    1,112  
David Thompson
    1,415  
Raymond Viault (a)
    1,432  
 
(a) Purchased ADRs equivalent to the number of shares shown on 4 January 2008 at a price of $48.80 per ADR.
Save as disclosed, there have been no other changes in the interests of the Directors between 1 January 2008 and 4 March 2008.
All the interests detailed above are beneficial. Save as disclosed, none of the Directors had any other interest in the securities of the Company or the securities of any other company in the Group. The Register of Directors’ Interests, which is open to inspection, contains full details of Directors’ shareholdings and share options.
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Share capital
Changes in our share capital are detailed in Note 29 to the Financial Statements. At the 2008 Annual General Meeting, renewal will be sought of the authorities: (a) for the Directors to allot relevant securities and to allot equity securities for cash other than on a pre-emptive basis, shareowners having approved similar resolutions annually since 1982; and (b) for the Company to purchase its own shares as and if appropriate, shareowners having approved a similar resolution annually since 1998. The Directors have no present intention to issue shares in the Company for cash other than in connection with its share option and incentive schemes. The authority to purchase shares has not been used since 1999.

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Exchange controls and other limitations affecting Security Holders
There are at present no UK foreign exchange control restrictions on remittance of dividends on the Company’s ordinary shares or on the conduct of the Company’s operations. There are no restrictions under the Company’s Memorandum and Articles of Association or under English law that limit the right of non-resident or foreign owners to hold or vote the Company’s ordinary shares. In the event that a person who is or was interested in ordinary shares fails to give the Company any information required by a notice given pursuant to Section 212 of the Companies Act 1985 (as amended) (the “Companies Act”) (which confers upon public companies the power to require information with respect to interests in their voting shares) within the time specified in the notice, the Company may apply to the Court for an order, inter alia, that no voting rights be exercisable in respect of such shares and that no shares be issued or (except on liquidation) payment be made by the Company in respect of such shares. The owner shall not be entitled to attend or vote at meetings, and (in the case of a person who owns at least 0.25% in number or nominal value of the shares, or any class of shares in issue) the Board of Directors of the Company may withhold payment of all or part of any dividends. The owner shall not be entitled to receive shares in lieu of dividend and the Board of Directors of the Company may decline to register a transfer of shares in circumstances, if (a) the Company has given notice to the registered holder requiring the delivery of an ownership declaration by the beneficial owner pursuant to the Articles of Association (the “Articles”) of the Company; (b) no such declaration has been delivered during the period of 14 days since the service of the notice; and (c) the Company has given a further notice to the registered holder in accordance with the Articles.
As of 20 January 2007, the company and its shareholder were required to comply with Disclosure and Transparency Rule 5 (“DTR5”) (which contains the provisions on disclosure of major shareholdings). Under these obligations, a shareholder must notify the Company of the percentage of its voting rights held through a direct or indirect shareholding in the Company if the percentage of those voting rights:
(1) reaches, exceeds or falls below 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10% and each 1% threshold thereafter up to 100% as a result of an acquisition or disposal of shares or financial instruments; or
(2) reaches, exceeds or falls below an applicable threshold in (1) as a result of events changing the breakdown of voting rights and on the basis of information disclosed by the issuer.
As of 10 April, the company holds four notifications of interests amounting to 3% or more in the issued share capital of the Company in accordance with DTR5. The table below details notifications of interests from 1 January 2003. The ordinary shares and any ADRs held by the shareholders identified in the below table have the same voting rights as the other ordinary shares.
Notifications of Share Interests
                 
        Number of shares in      
        which there is an      
Date of       interest (in     Interest in issued
Notification   Interested Party   millions)     share capital (in %)
2003
               
13 February
  Barclays PLC     61.8     Increase to 3.0
27 February
  Franklin Resources, Inc.     62.3     Increase to 3.0
19 March
  Franklin Resources, Inc.     83.0     Increase to 4.0
6 May
  Barclays PLC     60.4     Decrease to 2.9
24 July
  Franklin Resources, Inc.     103.2     Increase to 5.0
2004
               
5 January
  Franklin Resources, Inc.     123.7     Increase to 6.0
10 May
  Franklin Resources, Inc.     119.2     Decrease to 5.8
2005
               
1 June
  Barclays PLC     80.9     Increase to 3.9
12 September
  Franklin Resources, Inc.     103.1     Decrease to 5.0
2006
               
12 January
  Barclays PLC     62.5     Decrease to 2.9
1 February
  Barclays PLC     62.6     Increase to 3.0
29 November
  Barclays PLC     61.9     Decrease to 2.9
2007
               
13 February
  Legal & General Investment Management     61.7     Increase to 3.47
19 March 2007
  Morgan Stanley Investment Management Limited 150,787,720     7.18%
28 June 2007
  Train Fund Management L.P.     72,965,267     3.47%
16 August 2007
  ABN Amro Bank N.V     70,972,250     3.38%
29 August 2007
  ABN Amro Bank N.V     49,642,548     2.36%
14 September 2007
  Legal and General Group plc     84,282,365     4.00
5 October 2007
  Legal and General Group plc     107,952,188     5.12
19 November 2007
  Legal and General Group plc     106,419,523     5.04 (increase in direct shareholding)

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ITEM 8: FINANCIAL INFORMATION
The financial statements filed as part of this Report are included on pages F-1 through F-70 hereof.
ITEM 9: THE OFFER AND LISTING
The Trading Market
The principal trading market for the ordinary shares of 12.5p is the London Stock Exchange. ADRs have been traded on the New York Stock Exchange since 2 May 1996 under the ticker symbol CSG. Since the two for one share split in 1999, each ADR represents four ordinary shares of 12.5p.
The table below details for the stated periods the high and low market prices for the ordinary shares, as derived from the Daily Official List of the London Stock Exchange, and for the ADRs, as reported on the New York Stock Exchange composite tape. The ADR price is affected by the exchange rate between the pound sterling and the US dollar.
Share Prices: Ordinary Shares and ADRs
                                     
                            American  
            Ordinary Shares     Depositary Receipts  
            High     Low     High     Low  
Financial Year     £     £     US$     US$  
 
2002
            5.34       3.78       31.75       24.40  
2003
            4.11       3.01       29.89       19.76  
2004
            4.87       3.93       38.00       29.15  
2005
            5.95       4.66       43.27       35.45  
2006
  First Quarter     5.91       5.43       41.46       38.29  
 
  Second Quarter     5.73       4.98       41.37       37.05  
 
  Third Quarter     5.72       5.14       43.38       38.20  
 
  Fourth Quarter     5.66       5.17       43.33       39.58  
 
  Full Year     5.90       4.98       43.38       37.05  
2007
  First Quarter     6.57       5.28       51.41       40.74  
 
  Second Quarter     7.24       6.55       57.30       52.22  
 
  Third Quarter     6.73       5.34       54.20       42.78  
 
  October     6.36       5.69       53.24       46.90  
 
  November     6.25       5.93       51.98       48.92  
 
  December     6.41       6.07       52.79       49.20  
 
  Fourth Quarter     6.41       5.69       53.24       46.90  
 
  Full Year     7.24       5.28       57.30       40.74  
2008
  January     6.23       5.52       49.56       43.93  
 
  February     6.13       5.62       47.05       44.33  
 
  March     5.79       5.39       46.33       43.43  
 
  April (to 9 April)     5.87       5.66       46.61       45.19  
ITEM 10: ADDITIONAL INFORMATION
SUMMARY OF MEMORANDUM AND ARTICLES OF ASSOCIATION
A copy of the Company’s Memorandum and Articles of Association, amended as of 4 May 2000 and in force at the date of the filing of this Form 20-F, is appended as an exhibit to the Company’s Form 20-F for the fiscal year ended 30 December 2001, and filed on 11 April 2002 and Report on Form 6-K filed on 5 June 2002.
Object and Purposes
The Company’s principal objects are to carry on business as a general commercial company and to carry on any trade or business whatsoever. The Company has multiple business objectives and purposes and is authorised to do such things as the board may consider to further the Company’s interests, all as provided in its Memorandum of Association.

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Directors
(a) Subject to the provisions of the Companies Act, and provided he has declared the nature of his interest to the board as required by the Companies Act, a director is not disqualified by his office from contracting with the Company in any manner, nor is any contract in which he is interested liable to be avoided, and any director who is so interested is not liable to account to the Company or the members for any benefit realised by the contract by reason of the director holding that office or of the fiduciary relationship thereby established.
Except as mentioned below, no director may vote on, or be counted in a quorum in relation to, any resolution of the board in respect of any contract in which he is to his knowledge materially interested, taking into account interests of any person connected with him, and, if he does so, his vote shall not be counted. These prohibitions do not apply to a director in relation to:
(i)   the giving to him of any guarantee, indemnity or security in respect of money lent or obligations undertaken by him for the benefit of the Company or any of its subsidiary undertakings;
 
(ii)   the giving of any guarantee, indemnity or security to a third party in respect of a debt or obligation of the Company or any of its subsidiary undertakings which he has himself guaranteed, indemnified or secured in whole or in part;
 
(iii)   an offer by the Company or any of its subsidiary undertakings in which he is or may be entitled to participate or the underwriting or sub-underwriting of which the director is to participate in;
 
(iv)   any contract in which he is interested by virtue of his interest in shares or debentures or other securities of the Company or by reason of any other interest in or through the Company;
 
(v)   any contract concerning any other company (not being a company in which the director owns one per cent. or more (as defined in the Articles of Association)) in which he is interested directly or indirectly;
 
(vi)   any contract concerning the adoption, modification or operation of a pension fund or retirement, death or disability benefits scheme which relates both to the directors and employees of the Company or any of its subsidiaries and does not provide in respect of any director as such any privilege or advantage not accorded to the employees to whom such scheme or fund relates;
 
(vii)   any contract for the benefit of employees of the Company or any of its subsidiaries under which he benefits in a similar manner to the employees and which does not accord to any director as such any privilege or advantage not accorded to the relevant employees; and
 
(viii)   any contract for the purchase or maintenance for any director of insurance against any liability.
Subject to the Companies Acts, the Company may by ordinary resolution suspend or relax the above provisions to any extent or ratify any transaction not duly authorised by reason of a contravention of such provisions.
(b) Although there are no provisions in the articles specifically relating to directors’ powers, in the absence of an independent quorum, to vote compensation to themselves or any members of their body, the provisions set out in paragraph (a) above would need to be taken into account. The Articles further provide that the board of directors may determine directors’ fees (subject to prescribed limits) and that the board or an authorised committee thereof may exercise all powers of the Company to provide benefits (either by the payment of gratuities or pensions or by insurance or in any other manner) for any director, former director or their relations, connections or dependants, subject to certain conditions.
(c) The board may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and to issue debentures and other securities, whether outright or as collateral for any debt, liability or obligation of the Company or any third party. The board must restrict the Company’s borrowings in order to ensure that the aggregate principal amount from time to time outstanding of all borrowings by the Group shall not (without the previous sanction of an ordinary resolution of the Company) exceed an amount equal to 2-1/2% times the adjusted capital and reserves, as defined in the Articles of Association.

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(d) No person shall be disqualified from being appointed a director, nor shall any director be required to retire as a director, by reason only of the fact that he has attained the age of 70 years or any other age. If the board convenes any general meeting at which, to the knowledge of the board, a director who is 70 or over will be proposed for appointment or re-appointment, it must give notice of his age in the documents convening the meeting.
Shares
(a) Subject to the Companies Act, shareholders may receive dividends in accordance with the rights attached to each class of shares that they hold. No dividend shall exceed the amount recommended by the board of directors. Further, the board may pay interim dividends if, in its opinion, these are justified by the financial position of the Company.
The board may, if authorised by any ordinary resolution of the Company, offer ordinary shareholders in respect of any dividend the right to elect to receive ordinary shares, credited as fully paid, instead of cash.
Any dividend unclaimed after a period of 12 years from the date when it became due for payment shall be forfeited and shall revert to the Company.
(b) Every member of the Company who is present in person at a general meeting shall have one vote on a vote taken by a show of hands. On a poll, every member who is present in person or by proxy shall have one vote for every share of which he is the holder. Voting at any general meeting of the shareholders is decided on a show of hands unless a poll is properly demanded. A poll may be demanded by:
(i)   the chairman of the meeting;
 
(ii)   at least five members present in person or by proxy and entitled to vote;
 
(iii)   any member or members present in person or by proxy representing together not less than one-tenth of the total voting rights of all the members having the right to attend and vote at the meeting; or (iv) any member or members present in person or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.
(c) Other than the provisions outlined above relating to dividends, shareholders have no other rights to share in the Company’s profits.
(d) The rights of shareholders to share in any surplus in the event of liquidation are not expressly dealt with in the Articles of Association. Under English law, in the event of liquidation, after payment of all liabilities, the Company’s remaining assets would be used to repay the holders of shares the nominal value they paid for their shares. Any balance would be divided amongst the shareholders in proportion to the nominal amount held by them. The liquidator of the Company may also (with the sanction of a special resolution of the Company) sell any part of the non-cash assets of the Company and set such values to be attached to those assets.
(e) Subject to the Companies Act and to any rights conferred on the holders of any other shares, any share may be issued which is to be redeemed, or is to be liable to be redeemed at the option of the Company or the shareholder.
(f) There are no sinking fund provisions in the Articles of Association.
(g) Subject to the terms of issue, the board of directors may from time to time make calls upon the members in respect of any moneys unpaid on their shares and not payable on a date fixed under the terms of issue. Members may also elect to advance all or any part of moneys uncalled and unpaid upon any shares that they hold, if this is acceptable to the board.
(h) There are no provisions in the Articles of Association which discriminate against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of shares.
Variation of Rights
Subject to the provisions of the Companies Act, all or any of the rights attached to any class of shares may be varied with the written consent of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of those shares.

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General Meetings
Annual General Meetings of the Company are convened by the board of directors in accordance with the Companies Act, on a date that is within 15 months after the date of the preceding annual general meeting, at a place and time determined by the board. The board may convene an extraordinary general meeting whenever it thinks fit. In addition, the board must convene an extraordinary general meeting if requested to do so by members of the Company holding not less than one-tenth of the paid up capital of the Company carrying the right to vote at general meetings at the date of the request.
Two members present in person or by proxy and entitled to vote shall constitute a quorum for all purposes, save as otherwise provided by the Articles of Association. If a quorum is not present within five minutes after the appointed commencement time of the meeting, the meeting will be adjourned to another day, being not less than ten and not more than 28 days later. At that reconvened meeting, one member present in person or by proxy shall constitute a quorum.
Members or their proxies wishing to attend any general meeting must submit to searches or other security arrangements or restrictions as the board shall consider appropriate and may be refused admission if they refuse to submit to such searches, arrangements or restrictions.
Limitations on Rights to own Shares
Persons who are neither resident in the UK nor UK nationals may freely hold, vote and transfer shares in the same manner as UK residents or nationals. Any member whose registered address is not within the UK can give the Company a postal address within the UK at which notices may be served on him. Otherwise, a member whose registered address is not within the UK is not entitled to receive any notice from the Company.
Change in Control
There are no provisions in the Memorandum or Articles of Association that would have an effect of delaying, deferring or preventing a change of control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries).
Notification of Shareholding
Under the Companies Act, any person who acquires:
(a) a material interest in the Company’s voting share capital equal to or in excess of three per cent. of the nominal value of that share capital; or
(b) a non-material interest equal to or in excess of ten per cent. of the nominal value of the share capital,
comes under an obligation to notify the Company of prescribed particulars (set out in the Companies Act) relating to his shareholding. Equally, the obligation to notify the Company arises where a shareholder’s notifiable interest in the Company’s share capital falls below the notifiable percentage, or where, above that level, the percentage of the voting share capital in which a shareholder has a notifiable interest increases or decreases.
Differences from law in host country
With respect to the items discussed above, applicable UK law is not materially different from applicable US law.
Changes in Capital
The provisions in the Memorandum and Articles of Association in respect of changes in the Company’s capital are no more stringent than required by English law. Thus, the Company may by ordinary resolution increase, consolidate, consolidate and then divide, sub-divide its shares or any of them (subject to the Companies Act), or cancel any shares which, at the date of the resolution, have not been taken or agreed to be taken by any person. The Company may, subject to the Companies Act, by special resolution reduce its share capital, any capital redemption reserve, any share premium account or any other undistributable reserve.

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MATERIAL CONTRACTS
The following summaries are not intended to be complete and reference is made to the agreements themselves, which are included as exhibits to this Form 20-F or other filings with the SEC as indicated below.
Indenture among Cadbury Schweppes US Finance LLC, as Issuer, Cadbury Schweppes plc, as Guarantor, Cadbury Schweppes Finance p.l.c., as Subsidiary Guarantor and JPMorgan Chase Bank, as Trustee, and related First Supplemental Indenture.
The Company’s wholly-owned subsidiary, Cadbury Schweppes US Finance LLC, issued US$1 billion principal amount of 3.875% senior notes due 2008 and US$1 billion principal amount of 5.125% senior notes due 2013 under an indenture dated 29 September 2003, as supplemented by a First Supplemental Indenture dated 29 September 2003, in each case between Cadbury Schweppes US Finance LLC, as issuer, Cadbury Schweppes plc as Guarantor, Cadbury Schweppes Finance p.l.c. as Subsidiary Guarantor and JP Morgan Chase Bank, as Trustee. In each case, the senior notes are fully and unconditionally guaranteed by Cadbury Schweppes plc and Cadbury Schweppes Finance p.l.c. The first interest payment was made on 1 April 2004. Cadbury Schweppes US Finance LLC may redeem the notes at any time, in whole or in part, at its option.
The indenture, as supplemented, describes the circumstances that would be considered events of default. These circumstances include, among other things, the acceleration of Capital Markets Indebtedness (as defined in the indenture) in the amount of £25,000,000 or more. If an event of default occurs, the holders of at least 25% of the principal amount of the then outstanding notes may declare the notes, along with accrued, but unpaid, interest and other amounts described in the indenture, as immediately due and payable. The indenture limits the Group’s ability to create liens on, and enter into sale-leaseback transactions with respect to, its Principal Properties (as defined in the indenture).
For further information regarding the Indenture and the First Supplemental Indenture, please see the Company’s Report on Form 20-F for its fiscal year ended 28 December 2003, and exhibits thereto.
Sixth Supplemental Trust Deed dated 8 September 2006, among Cadbury Schweppes public limited company, Cadbury Schweppes Finance p.l.c., Cadbury Schweppes Investments plc, and The Law Debenture Trust Corporation p.l.c.
On 8 September 2006, the Company entered into a Sixth Supplemental Trust Deed with the Law Debenture Trust Corporation p.l.c., as Trustee, in respect of the Company’s Euro Medium Term Note Programme. Any notes issued thereunder by Cadbury Schweppes Investments plc are guaranteed by Cadbury Schweppes plc and Cadbury Schweppes Finance p.l.c.; any notes issued thereunder by Cadbury Schweppes Finance p.l.c. are guaranteed by Cadbury Schweppes plc and Cadbury Schweppes Investments plc.
For further information regarding the Fifth Supplemental Trust Deed, please see the Company’s Report on Form 20-F for its fiscal year ended 1 January 2006, and exhibits to this Form 20-F.
Form of Directors’ Service Contract
During 2004, the Company entered into new service contracts with each of its executive directors. A description of the material terms of the directors’ service contracts, set forth on page 59, and their respective remuneration arrangements, set forth under the heading “Management Compensation” on pages 57 to 70 of Form 20-F furnished as an exhibit to the Company’s Form 6-K dated 11 April 2005, is incorporated by reference herein. In addition to the directors’ service contracts, the Company has entered into secondment arrangements with Messrs. Stitzer and Stack which provide for housing support and other allowances, as described in the Report on Directors’ Remuneration. The introduction of age discrimination legislation in the UK, necessitated amendments to the Executive Directors’ service contracts, which took effect from 30 March 2007. An example of the form of variation is incorporated as an exhibit to the Company’s Form 6-K dated 16 April 2007. For further information regarding the directors’ service contracts, please see the Company’s Report on Form 20-F for its fiscal year ended 2 January 2005, which is an exhibit to the Company’s Form 6-K dated 11 April 2005, and exhibits to this Form 20-F.
Form of Directors’ Indemnity
In February 2005, the Company granted indemnities to each of the directors and the Company Secretary. The description of the directors’ indemnity, set forth on page 42 of the Company’s Report and Accounts and Form 20-F furnished as an exhibit to the Company’s Form 6-K dated 11 April 2005, is incorporated by reference herein. For further information regarding the directors’ indemnity, please see the Company’s Report on Form 20-F for its fiscal year ended 2 January 2005, which is an exhibit to the Company’s Form 6-K dated 11 April 2005, and exhibits to this Form 20-F.

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TAXATION
This discussion of UK and US tax law considerations is intended only as a descriptive summary and does not purport to be a complete technical analysis or listing of all potential tax effects relevant to the ownership of ordinary shares or ADRs. If a Shareowner is in any doubt about their tax position, or is resident or otherwise subject to taxation in a jurisdiction other than the UK or the US, they should contact their own professional adviser.
The summary of UK and US tax laws set out below is based: (i) on the laws in force as at 31 December 2007, and is subject to any changes in UK or US law, or in any double taxation convention between the US and the UK or in UK Inland Revenue practice, occurring after 31 December 2007; and (ii) in part on representations of the Depositary and assumes that each obligation provided for in, or otherwise contemplated by, the Deposit Agreement and any related agreement will be performed in accordance with its terms. This summary is not exhaustive of all possible tax considerations and holders of ordinary shares or ADRs are advised to satisfy themselves as to the overall tax consequences of their ownership of ordinary shares or ADRs and the ordinary shares represented thereby, by consulting their own tax advisers. This summary does not deal with the UK tax consequences for a US resident Shareowner that is resident, or in the case of an individual, ordinarily resident, for UK tax purposes in the UK or that carries on business in the UK through a permanent establishment.
The discussions below regarding US residents are based on the articles of the double taxation convention between the US and the UK which came into force on 31 March 2003 (the “US-UK Convention”).
For the purpose of the US-UK Convention and for the purposes of the US Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder (the “Code”), discussed opposite, the holders of ADRs should be treated as the owners of the underlying ordinary shares that are evidenced by such ADRs.
Taxation of Dividends
UK Residents
An Individual Shareowner resident in the UK is generally treated for UK income tax purposes as having taxable income equal to the sum of the dividend paid and the tax credit attached to the dividend. The tax credit is equal to one-ninth of the dividend and may be credited against the shareowner’s UK income tax liability.
Shareowners who pay tax at the starting rate (10%) lower rate (20%) or basic rate (22%) will have no further liability to tax.
Non taxpayers will be unable to make a claim for the repayment of the notional tax credit.
The position of higher rate taxpayers is as follows (using a cash dividend of £90 as an example):
         
    £
Tax Credit
    10.00  
Higher Rate Tax*
    (32.50 )
 
*   The higher tax rate itself is 40%, however a special tax rate of 32.5% applies to income from UK dividends. Tax payable under self assessment is £22.50 (made up of £32.50 less the tax credit of £10.).
US Residents
A US resident shareowner will be treated as receiving dividend income equal to the amount of the dividend. The UK does not impose withholding tax on dividends paid to US resident shareowners.
A dividend payable to a holder who is a US citizen or a US resident (as defined below) will generally be treated as foreign source dividend income for US federal income tax purposes. The amount of any cash distribution paid in pounds sterling will be the US dollar value of the pounds sterling payment on the date of receipt by the US holder (or, in the case of the ADRs, by the Depository), regardless of whether the payment is converted into US dollars. Gain or loss, if any, recognised on the sale or disposition of pounds sterling generally will be ordinary US source income or loss. Such dividend will not be eligible for the 70% dividends received deduction allowed to US corporations under Section 243 of the Code. Special rules apply for the purposed of determining the dividend paid and foreign tax credit available to a US corporation which, either alone or together with one or more associated corporations, controls, directly or indirectly, 10% or more of the voting stock of the Company. Subject to certain exceptions for positions that are hedged or held for less than 60 days, an individual holder of shares generally should be subject to US taxation at a maximum rate of 15% in respect of dividends receive in 2007. As used herein, the term “US resident” includes an individual resident in the US for purposes of US tax, a US corporation and a foreign corporation or non-resident alien individual engaged in the conduct of a trade or business within the US with which a dividend or gain, as the case may be, on the ADRs or ordinary shares is effectively connected.

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Capital Gains
UK Residents
The UK tax rules governing capital gains tax (CGT) on the disposal of shares are complex and depend on the precise circumstances that apply in each case. It is not, therefore, possible to give individual advice to shareowners who are subject to UK CGT.
For shares held on 31 March 1982 and continuing to be held by shareowners who are resident in the UK for tax purposes and are subject to CGT, the base costs for CGT purposes will normally be the market value of the shares as at 31 March 1982. For shares purchased after this date by shareowners, the base cost will normally be the acquisition costs of the shares.
The value of any ordinary share of 12.5p as at 31 March 1982 was 49.25p, adjusted to reflect the two for one share split in 1999. for shareowners who subscribed for their full entitlement under the rights issues in October1993 and February 1995, the value per share was 77.535p.
US Residents
Holders of ADRs or ordinary shares who are US resident individuals or US corporations, and who are no resident or ordinarily resident in the UK, will not be subject to UK taxation on capital gains realised on the disposal of their ADRs or ordinary shares, unless the ADRs or ordinary shares are used or held for the purposes of a trade, profession or vocation carried on in the UK through a branch or group. Such gain or loss will be capital gain or loss if the ADRs or ordinary shares are held as capital assets, and will generally be long-term capital gain or loss if the ADRs or ordinary shares were held for more than one year. Any such gain or loss will generally be US-source gain or loss.
The capital gain of a non-corporate United States holder is generally taxed at a maximum rate of 15% where the property is held more than one year. This long-term capital gains rate is scheduled to expire in 2011.
US Estate and Gift Tax
The current Estate and Gift Tax Convention between the US and the UK generally relieves from UK Inheritance Tax (the equivalent of US Estate and Gift Tax) the transfer of ordinary shares or of ADRs where the shareowners or holder of the ADRs making the transfer is domiciled, for the purposes of the Convention, in the US. This will not apply if the ordinary shares or ADRs are part of the business property of an individual’s permanent establishment in the UK or pertain to the fixed base in the UK of a person providing independent personal services. If no relief is given under the Convention, UK Inheritance Tax may be charged on the amount by which the value of the transferors’ estate is reduced as a result of any transfer made by way of gift or other gratuitous transaction by an individual in general within seven years of death or on the death of an individual. In the unusual case where ordinary shares or ADRs are subject to both UK Inheritance Tax and US Estate or Gift Tax, the Convention generally provides for tax paid in the UK to be credited against tax payable in the US or for tax paid in the US to be credited against tax payable in the UK based on priority rules set forth in the Convention.
Stamp Duty Tax for ADRs
No stamp duty or stamp duty reserve tax (SDRT) will be payable in the UK on the purchase or transfer of an ADR, provided that the ADR (and any separate instrument or written agreement of transfer) remains at all times outside the UK and that the instrument or written agreement of transfer is not executed in the UK. Stamp duty or SDRT is, however, generally payable at the rate of 1.5% of the amount or value of the consideration or, in some circumstances, the value of the ordinary shares, where ordinary shares are issued or transferred to a person whose business is or includes issuing depositary receipts or the provision of clearance services or to a nominee or agent for such a person.

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A transfer for value of the underlying ordinary shares will generally be subject to either stamp duty or SDRT, normally at the rate of 0.5% of the amount or value of the consideration (rounded up to the nearest £5 in the case of stamp duty). Stamp duty or SDRT is, however, generally payable at the rate of 1.5% of the amount or value of the consideration where ordinary shares are transferred to a person whose business is or includes the provision of clearance services, or to a nominee or agent for such a person.
A transfer of ordinary shares from a nominee to the ordinary shares’ beneficial owner (including the transfer of underlying ordinary shares from the Depositary to an ADR holder) under which no beneficial interest passes is subject to stamp duty at the fixed rate of £5.00 per instrument of transfer.
Close Company Status
So far as the Directors are aware the close company provisions of the Income and Corporation Taxes Act 1988 do not apply to the Company and there has been no change in that position since the end of the financial year.
Documents on Display
Documents on display are available by contacting the Group Secretary, 25 Berkeley Square, London WlJ 6HB, telephone: +44 (0) 207 409 1313.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 5: Operating and Financial Review and Prospects-Quantitative and Qualitative Disclosures about Market Risk for the required information.
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.

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PART II
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15: CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as at 31 December 2007 was carried out by the Company under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures have been designed to provide, and are effective in providing, reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate to allow such timely decisions regarding required disclosure. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organisations of the Treadway Commission.
Management has assessed the effectiveness of internal control over financial reporting, as at 31 December 2007, and has concluded that such internal control over financial reporting was effective.
Deloitte & Touche LLP, an independent registered public accounting firm, who has audited and reported on our consolidated financial statements, has also issued an audit report on the Company’s internal control over financial reporting. This report appears on page 81.
Changes in internal control Over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended 31 December 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Cadbury Schweppes plc
We have audited the internal control over financial reporting of Cadbury Schweppes plc and subsidiaries (the “Company”) as at 31 December 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with gen