EX-99.1 2 dex991.htm CADBURY PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2009 Cadbury plc Annual Report and Accounts for the year ended 31 December 2009

Exhibit 99.1

Registered Number 6497379

Cadbury plc

Annual Report and Accounts

For the year ended 31 December 2009


Contents

 

Directors’ Report

   3

Financial Review

   10

Remuneration Report

   22

Statement of Directors’ Responsibilities

   33

Independent Auditors’ Report

   34

Audited Financial Statements

   35

Registered Address:

Cadbury House,

Sanderson Road,

Uxbridge,

UB8 1DH


Directors’ Report

General

The Directors of Cadbury plc present their Report together with the audited financial statements for the year ended 31 December 2009.

Principal activities

Our principal activities are those of a global confectionery company involved in the manufacture and sale of chocolate, gum and candy products. A review of the Company and its subsidiary businesses is given in the Financial review on pages 8 to 16 (inclusive) which is incorporated by reference into and deemed to be part of this report. The operating companies principally affecting our profit or net assets in the year are listed in Note 36 to the financial statements.

Change of Control

On 7 September 2009 Kraft Foods, Inc. (“Kraft”) announced its intention to purchase the entire issued share capital of the Company. The Board of Cadbury agreed to recommend Kraft’s increased Final Offer for the Company on 19 January 2010 which valued each Cadbury 10p ordinary share at 500 pence and 0.1874 new Kraft shares. On 2 February 2010, Kraft Foods declared its recommended Final Offer wholly unconditional as to acceptances and subsequently commenced the procedure under Chapter 3 of Part 28 of the 2006 Act to acquire compulsorily all of the outstanding Cadbury Shares (including any Cadbury Shares represented by Cadbury ADSs) which it does not already hold or has not already acquired, contracted to acquire or in respect of which it has not already received valid acceptances.

The delisting of Cadbury plc on the London and New York Stock Exchanges took effect on 8 March 2010.

Directors

The names of the Directors of the Company who held office during the year unless stated otherwise are as follows:

Roger Carr, Chairman † ‡

Todd Stitzer, Chief Executive Officer *

Ken Hanna, Chief Financial Officer (resigned 3 April 2009)

Andrew Bonfield, Chief Financial Officer (appointed 3 April 2009)

Dr Wolfgang Berndt, Independent Non-Executive Director # † ‡

Colin Day, Independent Non-Executive Director # ‡

Guy Elliott, Senior Independent Non-Executive Director # ‡ *

Baroness Hogg, Independent Non-Executive Director # † ‡

Lord Patten, Independent Non-Executive Director ‡ *

Raymond Viault, Independent Non-Executive Director # † ‡

 

Member of Remuneration Committee
Member of Nomination Committee
# Member of Audit Committee
* Member of Corporate and Social Responsibility Committee

The current Board is remaining in office until the year end process is concluded. No new directors are expected to be appointed until after the Annual Report and Accounts has been approved by the Board.

Chief Executive’s Committee (“CEC”)

During the year the CEC comprised the following members: Amit Banati, Trevor Bond, Andrew Bonfield (from February 2009), James Cali, Jim Chambers, Tony Fernandez, Stefan Bomhard (from July 2009), Ignasi Ricou (from August 2009), Marcos Grasso, Ken Hanna (until April 2009), Anand Kripalu, Lawrence MacDougall, David Macnair, Bharat Puri, Mark Reckitt, Tamara Minick-Scokalo (until July 2009), Chris Van Steenbergen, Todd Stitzer (Chairman) and Henry Udow.

Corporate Governance

Cadbury is committed to high standards of corporate governance. Throughout 2009 and to 8 March 2010 when the Company was delisted from the London Stock Exchange, the Company complied fully with the main principles and supporting principles of the UK’s Corporate Governance Code (formerly the Combined Code).

 

Cadbury Report & Accounts 2009

3


Directors’ Report continued

 

Corporate Governance (continued)

Until 8 March 2010, the date at which Cadbury plc delisted from the New York Stock Exchange, the Company had a secondary listing on the NYSE and it was required to comply with certain of the NYSE Corporate Governance rules, and otherwise disclose any significant ways in which its corporate governance practices differ from those followed by US companies under the NYSE listing standards. Up until 8 March 2010, the Company complied with all the NYSE rules which apply to non-US issuers except as disclosed below.

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. The Nomination Committee included the Chairman, Roger Carr, amongst its members. Chairmen of UK companies are not considered to be independent, although Roger Carr was considered independent at the time of his appointment. Additionally, corporate governance matters were dealt with either by the Audit Committee, which is comprised solely of independent Non-Executive Directors, or by the full Board.

Legal proceedings

Cadbury plc and its subsidiaries are defendants in a number of legal proceedings incidental to their operations. The outcomes of such proceedings, either individually or in aggregate, are not expected to have a material effect upon the results of our operations or financial position.

Financial instruments

Information on our use of financial instruments, our financial risk management objectives and policies, and our exposure to credit liquidity and market risks, is provided in Note 28 to the Financial Statements.

Corporate and Social Responsibility

We have published a separate Corporate Responsibility and Sustainability Review every other year on our website, www.cadbury.com.

During the year our CSR performance was rated by various external organisations and this helped Cadbury to assess how we were progressing. External indices included: Dow Jones Sustainability World Index; FTSE4Good; the Carbon Disclosure Project; Climate Leadership Index; and the UK’s Business in the Community Corporate Responsibility Index.

Employees with disabilities

Applications for employment by disabled persons are always fully considered. We employ people with disabilities, though not all are formally registered as disabled in UK terms. If an employee becomes disabled, we aim wherever possible to offer an alternative job, with retraining if necessary. Training, career development and promotion opportunities for people with disabilities are consistent with our Group wide policy on equal employment opportunities, diversity and inclusiveness.

Employee communication and involvement

Employee communication and engagement continued to grow in 2009, with all areas of the business introducing enhanced communication structures and programmes. We keep employees regularly informed through colleague communications via email and via the Group’s intranet. Our financial results are always presented to employees through various media channels. Through our subsidiaries, we have successfully entered into numerous collective bargaining agreements. Our management has no reason to believe that it would not be able to renegotiate any such agreements on favourable terms.

Employee share ownership

Share ownership amongst our employees was actively encouraged. Employees in many of the countries in which we operate had access to all-employee share plan arrangements. Overall around 30% of all eligible employees chose to participate in such plans and invitations to do so were issued on an annual or biennial basis.

 

Cadbury Report & Accounts 2009

4


Directors’ Report continued

 

Charitable and political contributions

In 2009, the value of Cadbury’s contribution to non-profit causes totalled £11.0 million (2008: £10.1 million), paid in respect of the following charitable purposes: education and enterprise, environment and health and welfare.

Charitable and political contributions (continued)

In 2009, in compliance with its policy on political donations, neither the Company, nor any of its subsidiaries, made any donation to any registered party or other EU political organisation, incurred any EU political expenditure or made any contribution to a non-EU political party, each as defined in the Political Parties, Elections and Referendums Act 2000 (“PPERA”).

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 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 based on both ISO14001 and OHSAS 18001. Our EHS policy and standards deal with environmental issues related to the manufacturing of our products, water, energy, packaging and protection of 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 our manufacturing sites are audited on a rotational basis by our Group EHS Assurance Department and areas of improvement are identified. Some sites are externally audited and certified to IS014001 or OHSAS18001.

Protecting the health and safety of employees is fundamental to our Business Principles. During the year we had a Quality Environment Health & Safety Committee, chaired by our President of Global Supply Chain. The remit of the committee includes quality and food safety.

Auditors

Each of the persons who is a director at the date of approval of this annual report confirms that

 

   

So far as the director is aware, there is no relevant audit information of which the company’s auditors are unaware

 

   

The director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the company’s auditors are aware of that information

This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.

Following the acquisition of the Company by Kraft Foods, Inc. and the approval of these accounts, Deloitte LLP will resign as auditor of the Company.

Note 6 in the financial statements states the auditors’ fees, both for audit and non-audit work.

Dividends

Subject to the Kraft Final Offer being declared wholly unconditional, the Directors declared and paid a special dividend of 10 pence per ordinary share, payable to those shareholders on the Company’s share register on 2 February 2010. The special dividend was also paid on a rolling basis to participants exercising awards and options under the Group’s employee incentive plans. An interim dividend of 5.7 pence was paid on 16 October 2009.

Capital Structure

Details of the authorised and issued share capital, together with details of movements in the issued share capital of Cadbury plc during the year are shown in Note 29 which is incorporated by reference and deemed to be part of this report. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company.

 

Cadbury Report & Accounts 2009

5


Directors’ Report continued

 

The Statement of Directors’ responsibilities in relation to the financial statements is set out on page 28.

Directors’ share interests

The interests in the share capital of the Company of Directors holding office during the period at the beginning of the period, 1 January 2009 (or date of appointment if later), and the end of the period, 31 December 2009 (or the date of resignation if earlier), are detailed in the Directors’ Remuneration Report on page 27.

Directors’ remuneration

A statement of Directors’ remuneration is set out in the Directors’ Remuneration Report on pages 17 to 27.

Directors’ indemnities

Since February 2005, we have granted indemnities to each of the Directors, one member of our senior management and the Group Secretary to the extent that the Company is permitted by law. These indemnities are uncapped in amount, in relation to certain losses and liabilities which they may incur to third parties in the course of acting as directors (or company secretary as the case may be) or employees of the Company or of one or more of its subsidiaries or associates.

Policy on payment to suppliers

We adhere to the Better Payment Practice Guide. Our policy is, when agreeing the conditions of each transaction, to ensure that suppliers are made aware of the terms of payment and to abide by, and settle in accordance with, these terms. As Cadbury plc is a parent company, it has no trade creditors.

Contractual arrangements

Pursuant to section 992 of the Companies Act 2006, the Directors disclose the following:

 

(i) In the event of a change in control, the Group may be obliged to offer to sell its shares in Camelot Group PLC to the other shareholders at fair market value;

 

(ii) the Group’s £450 million Revolving Credit Facility (dated 30 June 2009) that matures on 26 June 2012 could become repayable. The facility providers have subsequently confirmed that the facility will not be withdrawn as a result of the Kraft acquisition of the Group.

 

(iii) where the change of control is coupled with a Rating Downgrade or Negative Rating Event (in each case as defined), holders of the Group’s £350 million 7.25 per cent Notes due July 2018 and £300 million 5.375 per cent Notes due December 2014 become entitled to put their Notes back to the issuer at their nominal amount, plus accrued interest. As at 9 March 2010, there has been no Rating Downgrade or Negative Rating event since the change of control relating to the Kraft acquisition of the Group.

 

Cadbury Report & Accounts 2009

6


Directors’ Report continued

 

Contractual arrangements

The Company is required to disclose any contractual or other arrangements which it considers are essential to its business. The Group has a wide range of suppliers and customers for its businesses, and whilst the loss of or disruption to certain of these arrangements could temporarily affect the operations of the Group, none are considered to be essential. Directors’ contracts are discussed in the Directors’ Remuneration Report on pages 17 to 27.

 

Risk Area

 

Impact

 

Management

External Risks

       

Risks

       
The risks facing the Group are identified and described below. The Group has considerable financial resources and an advantaged business model that operates across many different customers and suppliers in multiple geographies. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.
Competition with global, regional and local players as well as private label   >   Competitive strategies based on price or offer resulting in pressure on profits   >   Continue to improve the effectiveness of competitor analysis
      >   Support the brands with relevant and consistent innovation and communication
  >   Industry consolidation creating large competitors who can gain market share   >   Attain preferred supplier status with product offer and superior service
Market volatility of traded items particularly commodities and foreign exchange     Poor predictability of costs leading to poor profits and cash realization   >   Effective hedging processes at the Group level as well as transaction hedging at the local level
Global economic conditions and impact on customer, channel and consumer     Negative impact on revenue and profit   >   Adapt sales and marketing strategies including innovation to respond to changing consumer and customer behaviour
      >   Focus on effective route-to-market and customer service
      >   Be diligent about costs and efficiencies
Funding – supplier or customer failure, financing the business and the company pension fund     Potential loss of business partners, loss of revenue, inability to meet commitments, increased costs and inability to fund innovation   >   Monitor the financial health of business partners
      >   Manage the company’s working capital effectively
      >   Maximise committed financing
Regulatory pressures, relating particularly to the public health agenda     Failure to comply, leading to reputation damage and potential loss of business   >   Monitor public health concerns and respond proactively to regulation

 

Cadbury Report & Accounts 2009

7


Risk Area

 

Impact

 

Management

Internal Risks

       
Significant supply chain reconfiguration as set out by the VIA (Vision into Action) strategic plan   >   Failure to deliver planned cost savings   >   Employ strong capital project management
 

 

>

 

 

Reduced customer service levels

 

 

>

 

 

Enhance regional demand forecasting and network planning

Product quality and food safety     Consumer health concerns, damage to reputation and loss of revenue   >   Maintain strong quality standards and awareness
      >   Continue to deliver effective training
      >   Promote excellence in manufacturing disciplines
The new organisation – operating model, control, capabilities, costs efficiency     Failure to deliver faster decision making, global consistency in business processes or planned cost savings   >   Clarify and communicate the details of the operating model
      >   Place the right people in key roles and define precise accountabilities
Growth agenda – price, innovation, execution     Failure to deliver against planned growth targets   >   Drive towards fewer, faster, bigger, better innovation programmes
      >   Continue focus on effective price management and compelling market execution

Strategic Risks

       
Use of funds – resource allocation, delivery and accountability     Ineffective use of investment funds – failure to deliver target cost savings or business benefits   >   Align capital allocation process to the current business priorities
      >   Ensure tight project governance structures maintained within new organisation structure
      >   Continue to drive for excellence in project management
Underperforming markets     Damage to corporate reputation and shortfall against financial targets through failure to deliver against recovery plans in key ‘turnaround’ markets   >   Continue to implement recovery strategies
      >   Provide adequate funding and appropriate management resources to deliver plans

 

Cadbury Report & Accounts 2009

8


Risk Area

 

Impact

 

Management

Control Environment

       
Compliance culture     Inconsistent business processes and practices and inability to drive decisions quickly through the business   >   Regular self-assessment and key financial controls
      >   Continue to communicate clear policies
      >   Deliver high quality training
Business continuity planning     Ineffective or slow response to major supply chain disruptions leading to inability to supply customers and financial loss   >   Regularly monitor compliance
      >   Regularly review, test and update business continuity plans for all critical supply chain operations
Sustainability – environmental and social responsibility     Damage to business and reputation through failure to deliver on published targets   >   Maintain momentum in delivery of sustainability targets
      >   Monitor progress regularly
Health, safety and security of employees     Harm to employees and damage to reputation   >   Ensure continuing adherence to comprehensive health, safety and security policies
      >   Continue to deliver effective training and regularly monitor policy compliance

Going concern

As explained in Note 39 to the financial statements, the offer for the Group by Kraft Foods, Inc. (“Kraft”) became unconditional on 2 February 2010. Accordingly, the Company and the Group are now subject to the Kraft group treasury arrangements. The current committed facilities available to the Company are described in Note 27 to the financial statements. On the basis of the current committed facilities and the Group’s financial projections, the Directors consider that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. However, as described in the Directors’ Report on page 5 some of these facilities of the Company may no longer be available following the change of control. Kraft Foods, Inc. has provided a written commitment to the Company that it will provide alternative additional facilities for a period of at least 12 months from date of approval of these financial statements should the group’s existing revolving credit facility be no longer be available during this time.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors consider it appropriate to continue to adopt the going concern basis in preparing the Group accounts.

By order of the Board

Henry Udow

Chief Legal Officer and Group Secretary

9 March 2010

 

Cadbury Report & Accounts 2009

9


Financial review

 

Following the acquisition of Cadbury by Kraft, discussion of future strategy is not included in this document. Reference should be made to the Kraft Group accounts for appropriate forward looking statements concerning Cadbury.

The meanings of certain terms used in this financial review are as follows:

References to re-presented information refer to the representation of 2008 information for the inclusion of the IAS 19 pension financing result in non-underlying and the reclassification of certain cash and short-term investment balances. The Group has also re-presented its segmental analysis for the comparative 2008 financial information to represent the new Business Unit structure as this is consistent with the way the Chief Operating Decision Maker reviews the results of the operating segments.

References to 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 base business 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, acquisitions and disposals.

We believe that removing the effect of exchange rates, acquisitions and disposals provides a meaningful comparison of year on year performance of the base business. A reconciliation to the reported results is included on page 37.

Executive summary

 

      2009
£m
    Re-presented
2008
£m
    Reported
currency
growth
%
   Constant
currency
growth2
%

Revenue

   5,975      5,384      +11    +5

Underlying profit from operations1

   808      638      +27    +19

Underlying operating margin

   13.5   11.9     

Profit from operations

   507      388        

Underlying profit before tax1

   714      532        

Profit before tax

   378      400        

Discontinued operations

   235      (4     

Profit for the period

   510      366        

EPS – Continuing Operations

         

– Underlying EPS1

   37.9p      23.7p        

– Reported EPS

   20.1p      22.8p        

EPS – Continuing and Discontinued

         

– Underlying EPS1

   38.0p      29.0p        

– Reported EPS

   37.4p      22.6p        

Dividend per share

   15.7p      16.4p      -4   

 

1 Cadbury plc believes that underlying profit from operations, underlying profit before tax and underlying earnings per share provide additional information on underlying trends to shareholders. The term underlying is not a defined term under IFRS, and may not be comparable with similarly titled profit measurements reported by other companies. It is not intended to be a substitute for, or superior to, IFRS measurements of profit. A full reconciliation between underlying and reported measures is included in the segmental reporting and reconciliation of underlying measures note on page 36.
2 Constant currency growth excludes the impact of exchange rate movements during the period.

 

Cadbury Report & Accounts 2009

10


Financial review continued

 

Review of Group Income Statement

(a) Revenue

Revenue in 2009 was £5,975 million. This was £591 million, or 11%, higher than in 2008 as a result of strong base business growth of £260 million (+5%) and favourable currency movements of £340 million (+6%) partially offset by the impact of disposals of £9 million.

(b) Profit from operations

Underlying profit from operations was £808 million, £170 million or 27% higher than in 2008 principally as a result of a £120 million increase in base business performance and a £49 million favourable impact from currency movements. Profit from operations at £507 million was up £119 million (+31%) compared to 2008. This was principally driven by the increase in underlying profit from operations and exchange rates as discussed above, offset by a £90 million increase in non-trading items primarily due to external adviser costs incurred in relation to the takeover approach by Kraft Foods Inc.

(c) Share of result in associates

In 2009, our share of the result of our associate businesses (net of interest and tax) was a profit of £7 million. This compares to a profit in 2008 of £10 million.

(d) Financing

In 2009, the Group has a net financing charge of £136 million compared to a credit of £2 million in 2008. After allowing for the £18 million loss from fair value movements on commodity, interest rate and currency derivatives, the IAS 19 pension financing charge of £8 million, non-underlying items relating to interest on tax and other provisions of £7 million and a £2 million non-underlying charge relating to the unwinding of a discount on restructuring provisions, the net underlying finance charge was £101 million, a £15 million decrease from 2008.

(e) Taxation

Underlying profit before tax from continuing operations increased by 34% to £714 million. The continuing operations underlying tax rate in 2009 was 27.6% consistent compared with 27.8% in 2008.

(f) Discontinued operations:

On May 7 2008 the Group completed the demerger of the Americas Beverages business and on 3 April 2009 the Group completed the disposal of Australia Beverages to Asahi Breweries of Japan.

In accordance with IFRS 5, “Non-Current assets held for sale and discontinued operations”, these businesses are classified as discontinued operations.

The profit from discontinued operations for the year was £235 million (2008: loss of £4 million).

In 2009 the Australia Beverages business generated an operating profit of £7 million, with an underlying operating profit of £3 million. A £230 million non-underlying gain related to the disposal and £1m related to finance charges.

(g) Profit for the year

Total profit for the year was £510 million, an increase of £144 million from 2008 as a result of the profit on the sale of the Australia Beverages business, improved performance of the business and favourable currency movements partially offset by an increase in the charge from non-underlying items relating to continuing operations.

(h) Minority interests

In 2009, the Group companies in which we do not own 100% contributed an aggregate profit to the Group. The minority interest’s share of these profits was £1 million (2008: £2 million).

 

Cadbury Report & Accounts 2009

11


Financial review continued

 

(i) Earnings per share

Earnings per ordinary share from continuing operations

 

     2009
pence
    2008
pence
 

Reported earnings per share

   20.1      22.8   

Restructuring costs

   12.2      12.2   

Amortisation and impairment of acquisition Intangibles

   0.3      0.2   

Non-trading items

   7.1      —     

Pension financing charge (credit)

   0.6      (1.7

IAS 39 adjustment – fair value accounting

   4.5      (2.5

Tax effect on the above

   (6.9   (7.3

Underlying earnings per share

   37.9      23.7   

Underlying earnings per share increased by 14.2 pence to 37.9 pence principally reflecting the improved underlying performance and exchange rate movements.

Earnings per share – total group

Continuing and discontinued reported earnings per share were 37.4 pence, up 14.8 pence or 65% on 2008 as a result of the profit on the sale of Australia Beverages, stronger underlying performance and currency movements partially offset by an increase in the charge from non-underlying items relating to continuing operations.

(j) Dividends

Subject to the Kraft Final offer being declared wholly unconditional, the Directors declared and paid a special dividend of 10 pence per ordinary share, payable to those shareholders on the Company’s share register on 2 February 2010, equivalent to a cash payment of approximately £140 million. The final dividend for 2008 was 11.1 pence. The 2009 interim dividend was 5.7 pence.

Operating review 2009 compared to 2008 – Continuing Operations

From 1 January 2009, the Group was reorganised into seven Business Units, BIMA was split into Britain & Ireland and Middle East & Africa, Asia Pacific was split into Asia and Pacific, Americas was split into North America and South America and Europe remains unchanged. The results for 2008 have been re-presented accordingly.

Executive summary

 

Analysis of results

   2008
£m
    Base
business
growth
£m
   Acquisitions/
Disposals
£m
    Exchange
effects
£m
   2009
£m
 

Revenue

   5,384      260    (9   340    5,975   

Underlying profit from operations

   638      120    1      49    808   

– Restructuring costs

   (194           (164

– Amortisation and impairment of Intangibles

   (4           (4

– Non-trading items

   1              (89

– IAS 39 adjustment

   (53           (44

Profit from operations

   388              507   

 

Cadbury Report & Accounts 2009

12


Financial review continued

 

Review of 2009 Operating Results

(a) Revenue

Revenue at £5,975 million was £591 million or 11% higher than 2008 revenue of £5,384 million. The net effect of exchange movements during the year was to increase reported revenue by £340 million, mainly driven by a strengthening in the US Dollar and the Euro.

In 2009, the impact of disposals, resulted in a £9 million decrease in reported revenue relative to the prior year. Base business revenue grew £260 million or 5% with growth in all business units with the exception of Europe.

(b) Profit from operations

Profit from operations increased by £119 million (31%) to £507 million compared to 2008.

Underlying profit from operations (profit from operations before restructuring costs, non-trading items, amortisation and impairment of acquisition intangibles and the IAS 39 adjustment was £808 million. This was £170 million or 27% higher than in 2008.

Currency movements had a £49 million (8%) favourable impact on underlying profit from operations.

Underlying operating margin increased by 160 basis points to 13.5%. Excluding the impact of exchange, underlying operating margins increased by 155 basis points.

Marketing

Marketing spend was £629 million in 2009, an 8% increase at actual exchange rates and nil at constant exchange rates. Marketing spend as a percentage of revenues was 10% compared with 11% in the prior year.

Restructuring costs

Costs in respect of business restructuring were £164 million compared with £194 million last year and principally related to the Vision into Action programme (strategic plan to achieve mid-teens margins by 2011):

 

     2009
£m
   2008
£m

Vision into Action

   142    142

Integration costs

   15    9

Onerous contract and penalties payable – Gumlink

   2    27

Separation and creation of stand-alone confectionery business costs

   5    16
   164    194

Of this total charge of £164 million (2008: £194 million), £100 million (2008: £82 million) was redundancy related, £8 million (2008: £13 million) related to external consulting costs, £12 million (2008: £45 million) was associated with onerous contracts and £15 million (2008: £9 million) relates primarily to integration of the Group’s business in Turkey. The remaining costs consisted of asset write-offs, site closure costs, relocation costs, distribution contract termination payments and acquisition integration costs.

Amortisation and impairment of acquisition intangibles

Amortisation of acquisition intangibles was £4 million in 2009 and 2008. There were no impairment charges recognised in 2009 or 2008.

 

Cadbury Report & Accounts 2009

13


Financial review continued

 

Non-trading items

During 2009, the Group recorded a net loss from non-trading items of £89 million compared to a net profit of £1 million in 2008 primarily due to external adviser costs incurred in relation to the takeover approach by Kraft Foods Inc.

IAS 39 adjustment

Fair value accounting under IAS 39 resulted in a charge of £44 million (2008: £53 million charge). This principally reflects the fact that in 2009 spot commodity prices and exchange rates were higher than the rates implicit in the Group’s hedging arrangements as reflected in the underlying results.

Effect of exchange rates and inflation on 2009 reported results

Over 75% of the group’s revenues and profits in 2009 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 2009, movements in exchange rates increased the Group’s revenue by 6% and underlying operating profit by 8%.

Britain and Ireland

 

Full year results (£m)

   2008     Base
business
    Acquisitions/
Disposals
    Exchange
effects
    2009  

Revenue

   1,269      88      (9   18      1,366   

year-on-year change

   —        +6.9   –0.7   +1.4   +7.6

Underlying profit from operations

   139      35      1      3      178   

year-on-year change

   —        +25.2   0.6   +2.2   +28.0

Underlying operating margins

   11.0   +190 bps    —        —        13.0

In Britain & Ireland, base business revenue grew by 7% in 2009, led by strong performance in the UK on the back of new product innovation and excellent Easter sales with the overall UK market share up 100bps. Underlying operating margins grew by 190bps driven by strong top-line growth, sales mix improvement and Vision into Action cost savings.

Middle East and Africa

 

Full year results (£m)

   2008     Base
business
    Acquisitions/
Disposals
   Exchange
effects
    2009  

Revenue

   376      41      —      37      454   

year-on-year change

   —        +10.9   —      +9.8   +20.7

Underlying profit from operations

   34      14      —      7      55   

year-on-year change

   —        +41.2   —      +20.6   +61.8

Underlying operating margins

   9.0   +250 bps    —      +60 bps    12.1

In Middle East and Africa, 2009 revenue growth of 11% reflected good performance in Nigeria and strong growth in South Africa and Egypt. All categories contributed to the good performance. Strong margin progression of 250bps driven by business transformation, portfolio rationalization and supply chain initiatives.

 

Cadbury Report & Accounts 2009

14


Financial review continued

 

Europe

 

Full year results (£m)

   2008     Base
business
    Acquisitions/
Disposals
   Exchange
effects
    2009  

Revenue

   1,097      (19 )   —      39      1,117   

year-on-year change

   —        -1.7   —      +3.5   +1.8

Underlying profit from operations

   115      3      —      5      123   

year-on-year change

   —        +2.6   —      +4.4   +7.0

Underlying operating margins

   10.5   +50 bps    —      —        11.0

In Europe, revenues were down 2% reflecting difficult economic conditions in developed markets. Against this backdrop, the business gained share in many key markets, and emerging markets grew by 7% in the second half. Despite difficult economic conditions, Europe successfully improved margin by 50bps.

North America

 

Full year results (£m)

   2008     Base
business
    Acquisitions/
Disposals
   Exchange
effects
    2009  

Revenue

   1,201      25      —      138      1,364   

year-on-year change

   —        +2.1   —      +11.5   +13.6

Underlying profit from operations

   231      27      —      29      287   

year-on-year change

   —        +11.6   —      +12.6   +24.2

Underlying operating margins

   19.2   +180 bps    —      —        21.0

In North America, revenue growth was up 2% for the year, reflecting a progressively stronger second half after a slow start to the year. Candy demonstrated an excellent underlying trend (up 16% in the second half) and the successful launch of Trident Layers in the autumn drove US gum market share up to 34.2% in December. The 180 bps margin progression was driven by good cost management and administrative cost reductions.

South America

 

Full year results (£m)

   2008     Base
business
    Acquisitions/
Disposals
   Exchange
effects
    2009  

Revenue

   430      56      —      (24 )   462   

year-on-year change

   —        +13.0   —      -5.6   +7.4

Underlying profit from operations

   84      14      —      (13 )   85   

year-on-year change

   —        +16.7   —      -15.5   +1.2

Underlying operating margins

   19.6   +60 bps    —      -180 bps    18.4

South America had excellent base business revenue growth, up 13%, with Trident and Halls performing particularly well on the back of format and platform innovations. Margin progression of 60bps was driven by a strong SG&A efficiency agenda and a favourable mix impact.

 

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15


Financial review continued

 

Pacific

 

Full year results (£m)

   2008     Base
business
    Acquisitions/
Disposals
   Exchange
effects
    2009  

Revenue

   664      17      —      98      779   

year-on-year change

   —        +2.5   —      +14.8   +17.3

Underlying profit from operations

   106      12      —      19      137   

year-on-year change

   —        +11.3   —      +17.9   +29.2

Underlying operating margins

   16.0   +140 bps    —      +20 bps    17.6

Pacific had base business revenue growth of 3% driven by good chocolate growth in Australia and strong candy performance across the business unit. Margin progression of 140bps reflected the benefits of increased price realisation, favourable product mix and supply chain efficiencies.

Asia

 

Full year results (£m)

   2008     Base
business
    Acquisitions/
Disposals
   Exchange
effects
    2009  

Revenue

   338      53      —      34      425   

year-on-year change

   —        +15.7   —      +10.0   +25.7

Underlying profit from operations

   37      11      —      4      52   

year-on-year change

   —        +29.7   —      +10.8   +40.5

Underlying operating margins

   10.9   +130 bps    —      —        12.2

Asia had double digit revenue growth, up 16%, driven by strong performances in India and China. Strong margin progression of 130bps was driven by good operational leverage and benefits from the elimination of the regional management structure.

Central

 

Full year results (£m)

   2008     Base
business
    Acquisitions/
Disposals
   Exchange
effects
    2009  

Revenue

   9      —        —      (1 )   8   

year-on-year change

   —        —        —      —        —     

Underlying profit from operations

   (108 )   4      —      (5 )   (109

year-on-year change

   —        -3.7   —      +4.6   0.9

Underlying operating margins

   n/a      —        —      —        —     

Central revenue arises on the rendering of research and development services to third parties.

 

Cadbury Report & Accounts 2009

16


Financial review continued

 

Cash Flows

Free Cash Flow

We define Free Cash Flow as the amount of cash generated by the business after meeting all our obligations for interest, tax and after all capital investment.

In 2009, we generated Free Cash Flow of £220 million, an increase of £96 million compared to 2008 when Free Cash Flow was £124 million.

Net cash inflow from operating activities as shown in the cash flow statement on page 33 was £523 million (2008: £469 million).

Cash flows on acquisitions and disposals

The net cash inflow in 2009 on acquisitions and disposals was £528 million (2008: £60 million). The net cash inflow in 2009 principally comprises the sale of Australia Beverages.

Financing cash flows

The net cash outflow from financing during 2009 was £787 million. This included payment of dividends of £226 million to shareholders and the receipt of £60 million from issue of ordinary shares and £17m due to the exercising of market purchase options. In the year, the net payback of borrowings was £638 million with £6.9 billion new borrowings raised and £7.5 billion borrowing repaid.

The net cash outflow from financing during 2008 was £31 million. This included payment of dividends of £295 million to shareholders and the receipt of £58 million from issue of ordinary shares due to the exercising of options. In the year, the net drawdown of borrowings was £215 million.

Net cash

Cash and cash equivalents (net of overdrafts) decreased during 2009 by £38 million to £200 million from £238 million at 31 December 2008. 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 2009 was £408 million (2008: £500 million), a decrease of 18% over the level of expenditure in 2008.

Review of accounting policies

Critical accounting policies

The preparation of our financial statements in conformity with IFRS, requires 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.

 

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Financial review continued

 

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.

(a) 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 expect 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.

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 consumed. 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 values 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.

(b) Recoverability of long-lived assets

We have significant long-lived asset balances, including in tangible 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, being the higher of fair value less costs to sell and value in use. Typically recoverable amount is based on value in use. If the recoverable amount of a long-lived asset were determined to be less than its carrying value, 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.

 

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Financial review continued

 

(c) 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 value in use of assets. Conversely, lower estimates of cash flows will decrease the value in use 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 lower than originally predicted.

(d) 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 value in use of the long-lived assets, which could result in the value in use falling below the asset’s 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 value in use 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.

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 potential need for, or the size of, an impairment charge.

(e) 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 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.

(f) Pensions

Several subsidiaries around the world maintain defined benefit pension plans. The biggest plans are located in the UK, Ireland, US, Canada 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.

 

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Financial review continued

 

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, while those on other asset classes represent forward-looking rates that have typically been based on other independent research by investment specialists. In the UK the Trustees have purchased a bulk annuity contract to insure a proportion of the liabilities. This is held as an investment of the Trust rather than reducing the liabilities. This contract is valued, for the purposes of the accounts, based on the underlying liabilities that they represent. 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 two years is set out below:

 

     2009     2008  

Discount rate

   5.7   6.1

Rate of asset returns

   6.9   6.2

Rate of salary increases

   4.5   3.7

A 50 basis point decrease in the estimate of the discount rate would have resulted in an approximate 8.1% 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 £8.2 million increase in the pension costs.

(g) 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 judgment 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.

 

Cadbury Report & Accounts 2009

20


Financial review continued

 

We operate in numerous countries but the tax regulations in the US and the UK have the most significant effect on income tax, deferred tax assets and liabilities and the income tax expense. The tax regulations are highly complex and while 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 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 two 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:

 

     2009
£m
    2008
£m
 

(Reduction)/Increase in current tax charge

   (1   3   

Reduction in deferred tax charge

   (15   (33

We recognised deferred tax liabilities of £163 million (2008: £121 million) at 31 December 2009, and have recognised deferred tax assets of £241 million (2008: £181 million). There are further unrecognised deferred tax assets for losses of £208 million (2008: (£183 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 a history of generating tax losses begins to show evidence of creating and utilising taxable profits. £88 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 accounting policies during 2009, please refer to note 1(b) of the financial statements for further information.

 

Cadbury Report & Accounts 2009

21


Remuneration report 2009

 

Unaudited section

Introduction from the Chairman of the Remuneration Committee

On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2009. This report describes the arrangements for the remuneration of Executive Directors and, where relevant, other Board members and Senior Executives.

For Cadbury, 2009 has been an eventful year and one in which setting stretching yet achievable performance targets for remuneration purposes was difficult given the uncertain economic circumstances. Those circumstances also resulted in a global salary freeze for senior executives in the Group in 2009. In light of the above, the Group’s performance is commendable, especially given the distraction of the takeover approach by Kraft Foods, Inc. We have always taken a view that good performance should be rewarded and we believe that this has been achieved.

On 2 February 2010, the offer by Kraft Foods, Inc to purchase the entire issued and to be issued share capital of Cadbury plc was declared unconditional. For 2010, as Cadbury plc is now a subsidiary of Kraft Foods, Inc, the Directors have no present intention to make any further awards under any of the equity plans described below. The ways in which the various share based elements of executive pay were treated on the change of control are described below. At the present time the other elements of executive remuneration remain in place on the same basis as in 2009. On 3 February 2010, it was announced that the Chairman, Mr Carr, Chief Executive Officer, Mr Stitzer and Chief Financial Officer, Mr Bonfield, will leave the Board of the Company with effect from a date to be determined.

Yours sincerely

Dr Wolfgang Berndt

This report has been prepared in accordance with the requirements of the Companies Act 2006 and related regulations. It also meets the requirements of the Listing Rules of the Financial Services Authority and the Combined Code on Corporate Governance issued by the Financial Reporting Council relating to Directors’ remuneration. The Act requires the Company’s auditors to report to the Company’s members on certain parts of the Directors’ Remuneration Report and to state whether in their opinion those parts of the Report have been properly prepared. The Report has therefore been divided into separate sections for Audited and Unaudited information.

Remuneration policy

The principles on which our Remuneration Policy for 2009 was based were as follows:

 

 

Base Salary between median and upper quartile of the Company’s comparator group and upper quartile for consistently strong or outstanding individual performance;

 

 

A portfolio of incentives and rewards which 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 metrics aligned with our strategic objectives (calculated at constant currency);

 

 

Total remuneration potential designed to be competitive, thereby enabling us to attract and retain high calibre executives;

 

 

Significant opportunities to acquire Cadbury shares, consistent with building a strong ownership culture; and

 

 

Executive Directors expected to meet a share ownership requirement set at four time’s base salary.

These share ownership guidelines were at the top end of such requirements for companies in the FTSE 100 and also applied to Senior Executives within the Group, with a range for them of one to three times salary, depending on their level within the organisation. All the Executive Directors who served in the year significantly exceeded this requirement except for Mr Bonfield who joined the Company early in 2009.

Shown below is the historical performance measured by total shareholder return (TSR), (the product of the share prices plus reinvested dividends), for the five years to 31 December 2009 compared with the TSR performance of the FTSE 100 companies over the same period. The FTSE 100 index has been selected for this comparison because it was the principal index in which the Company’s shares were quoted. The graph has been prepared in accordance with the Companies Act 2006. The graph takes into the account the scheme of arrangement by which Cadbury plc replaced Cadbury Schweppes plc as the ultimate parent company in the Group in May 2008.

 

Cadbury Report & Accounts 2009

22


Remuneration report 2009 continued

 

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

LOGO

Overview of remuneration elements for executives including Executive Directors

 

Element

  

Objective

  

Performance period

  

Performance conditions for awards

Base salary

(see page 18)

  

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 19)

  

Incentivises delivery of performance goals

for the year

   One year    From 2009, performance targets for awards are based 70% on a revenue/margin matrix, 20% on a cash flow measure and 10% on non-financial measures (following the Kraft takeover, these measures will be reviewed in 2010)

Bonus Share Retention

Plan (BSRP)

Note: This was a voluntary

investment programme

(see page 20)

  

Incentivised sustained

annual growth

Aided executive retention

Supported and encouraged share ownership

   Three years    Basic award and an additional match subject to continued employment and performance targets were based on a matrix requiring simultaneous improvement in revenue growth and trading margin on a constant currency basis

Long Term Incentive Plan (LTIP)

(see page 20)

  

Incentivised long-term value creation

Aided executive retention

   Three years    Performance targets were based on a matrix requiring simultaneous improvement in Return On Invested Capital (ROIC) and Underlying Earnings Per Share (UEPS)

 

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23


Remuneration report 2009 continued

 

Base Salary and benefits in kind

The base salary for each Executive Director takes into account market competitiveness and the performance of each individual, any changes in position or responsibility and pay and conditions throughout the Group. Market competitiveness was measured against 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. The structure also takes account of the reward structure in place for executives below Board level.

In 2009, the Executive Directors, in common with most Senior Executives around the Group, did not receive any base salary increase. Any apparent increases therefore are due to changes in exchange rates over the period. Mr Stitzer’s salary is paid in US Dollars, and the Sterling amount shown in this report has been calculated at the average exchange rate for 2009. No increases in salary for Mr Stitzer or Mr Bonfield are anticipated.

In addition to base salary, the Executive Directors also receive benefits in kind and allowances. Some of the allowances shown in the tables in the audited section of the report relate to income tax payments. Where taxation rates in the home base country are lower than in the host country (e.g. US vs UK), an international assignee is protected from a higher tax burden by a means of a tax equalisation programme funded by the Company. Under this programme, the Company pays amounts equal to the incremental taxes resulting from the assignment of that individual to the host country. This ensures that the assignee is not penalised financially by accepting roles of an international nature which would result in higher taxation costs than would have been the case in the home base 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.

Directors and members of the Chief Executive’s Committee (CEC) also receive flexible benefits and car allowances. Mr Bonfield’s and Mr Hanna’s allowances include an amount equal to 30% of their base salary in lieu of a pension contribution, disability benefits and life cover. Other benefits shown in the tables below included Company cars, and, for expatriates, housing support and other allowances.

 

Cadbury Report & Accounts 2009

24


Remuneration report 2009 continued

 

Retirement Benefits

The Group operates a number of retirement benefit programmes throughout the world. Such benefits reflect the local competitive conditions and legal requirements. Mr Stitzer is a member of the US Pension Scheme which consists of the US Cash Balance Plan, Excess Pension Plan and Supplemental Executive Retirement Plan (SERP). Benefits under these plans are calculated in US Dollars, reflecting annual adjustments in salary and providing that all of any incentive awards under AIP are pensionable, in line with normal practice in the US for defined benefit plans. The benefit is calculated on the basis of a single life annuity, without pension in payment increases or spouse’s pension and is generally paid in the form of a taxable lump sum on retirement. The overall benefit under these arrangements is a maximum of 60% of final average pensionable earnings after 25 years’ service. This arrangement is now closed to new members. Currency movements between UK Sterling and the US Dollar will result in fluctuations in the value of reported pension benefits for Mr Stitzer.

Mr Bonfield and Mr Hanna participated in a cash allowance programme as described above.

Annual Incentive Plan (AIP)

AIP is the Group’s annual cash bonus which takes into account current business plans and conditions. Around 44% of the Group’s UK employees receive an AIP payment and there is a threshold performance below which no award is paid. Executive Directors are eligible to receive up to 200% of base salary based upon a combination of quantitative financial measures and key performance indicators as determined by the Remuneration Committee for each year. In 2009, awards were based on a matrix requiring simultaneous improvement in revenue growth and underlying trading margin (both measured on a constant currency basis) (70% weighting), with an element related to cash and working capital measures (20% weighting) and non-financial measures which included environmental and Corporate Social Responsibility issues (10% weighting). The extent of the quantum of the overall award is dependent upon a performance matrix and other targets; disclosures of this matrix or targets are not provided due to their commercial sensitivity. The 2009 award for Executive Directors was 148.6% of base salary (2008: 194.1%). This was made up of 120.4% on revenue growth and trading margin, 16.3% on cash flow measures and 12% on non-financial measures.

Equity Plans

The plans described below are those which the Group offered to executives and employees either during 2009 or in previous years, in respect of which awards were still outstanding as at 31 December 2009. Following the acquisition of Cadbury plc by Kraft Foods, Inc on 2 February 2010, these plans were subject to the change in control provisions outlined in the plan rules. There are no special payments to Directors made after a change in control of the Company. Awards under the BSRP and LTIP vested as described below following the change in control. This was on the basis of the extent to which performance targets had been met as at 31 December 2009 as the Committee, in accordance with the rules of the plan, decided that this was the most appropriate date at which to measure the awards, given that the actual change in control date was so early in the 2010 financial year. Awards under the LTIP were paid (in accordance with plan rules) in cash based on the mid-market value of the Company’s ordinary shares on 2 February 2010, this price being £8.405 per share. The Directors have no present intention to make any further awards under any of the plans described below.

Bonus Share Retention Plan (BSRP)

BSRP was a voluntary bonus deferral plan with an additional matching award. It was available to a group of approximately 90 Senior Executives (including the Executive Directors). Participants could choose to invest their AIP award into the Company’s shares and were thereby eligible for a matching award which was subject to both continued employment and performance in line with pre-defined performance measures. No dividends or dividend equivalents were paid. 40% of the matching award vested after 3 years based on continued employment, with 60% dependent on performance targets based on a matrix requiring simultaneous improvement in revenue growth and trading margin calibrated with reference to Cadbury’s strategic goals. The maximum overall matching award was 100% of the amount invested. As BSRP was a voluntary plan with a risk of forfeiture during the performance period, the service match was not subject to performance conditions.

On the change in control on 2 February 2010, the outstanding cycles of BSRP vested as follows:

2007-2009 (performance determined at the time of the Americas Beverages demerger): 92.71%

2008-2010: 98%

2009-2011: 88%

 

Cadbury Report & Accounts 2009

25


Remuneration report 2009 continued

 

Long Term Incentive Plan (LTIP)

The LTIP was available to 90 Senior Executives (including the Executive Directors) who were granted a conditional award of shares with vesting being determined by a UEPS (Underlying Earnings Per Share) and ROIC (Return on Invested capital) matrix measured over 3 years, chosen because there is a strong correlation between combined UEPS and ROIC improvement and increased shareholder value. Again, this matrix aligned with Cadbury’s strategic agenda and financial plans. Participants also accumulated dividend equivalent payments on the conditional share awards which were paid in shares (to the extent that the performance targets were achieved). These dividend equivalent payments were then used to buy shares for the participants on the vesting date.

On the change in control on 2 February 2010, the outstanding cycles of LTIP vested in cash (as described above) as follows:

2007-2009 (performance determined at the time of the Americas Beverages demerger): 67.83%

2008-2010: 100%

2009-2011: 100%

Share Option Plans and Association of British Insurers (ABI) Dilution Limits

Discretionary Share Options were not part of the Group’s incentive programme for 2009 but awards held by executives that were previously granted were outstanding during the year. No rights to subscribe for shares or debentures of any Group Company were granted or exercised by any member of any of the Director’s families in 2009. All options granted in previous years had vested in full having achieved their performance targets.

Each Executive Director also had the opportunity to participate in the Savings Related Share Option Scheme operated in the country in which his contract of employment is based. The details of these Share Plans are provided in Note 26 to the Financial Statements.

The aggregate of all share based awards which use newly issued shares was well below the dilution limit guidelines laid down by the ABI. These guidelines provide that the options issued to employees under the Company’s All Employee Scheme 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 10p share capital on the last day of each of the last five financial years, was as follows:

 

Outstanding capacity

   2005     2006     2007     2008     2009  

For all employee Schemes

   4.58   5.27   6.42   4.54   5.19

For discretionary Schemes

   1.74   2.36   3.38   2.45   3.75

Service Contracts and Outside Appointments

All Executive Directors have 12 month rolling contracts (with no fixed or unexpired term) 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 the age of 65. The contracts include provisions relating to non-competition and non-solicitation for a period of one year. For Mr Stitzer (whose contract is dated 1 July 2004), if employment is terminated without cause or if he resigns for good reason, then twelve months’ base salary and target AIP will be paid, together with benefits for up to twelve months, or for a shorter period if he 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. Mr Stitzer is entitled to six months’ employment with an employing company in the USA under his international assignment arrangement if there are no suitable opportunities for him when his assignment ends.

In the case of Mr Bonfield (whose contract is dated 19 February 2009), if employment is terminated without cause or if he resigns for good reason, phased payments for up to 12 months calculated on base salary and target AIP would be payable instead, less any notice period worked within that 12 months period. If Mr Bonfield obtains employment as defined in his contract, amounts received will be offset against these payments. Further, in order to assist his relocation to the UK on appointment, the Company provided Mr Bonfield with a relocation package in line with Company policy and market practice that included a buyout arrangement in relation to his US property at the estimated market value, assistance with the costs of his physical transfer to the UK and a lump sum allowance to cover some of the one-off costs of purchasing a property in the UK.

 

Cadbury Report & Accounts 2009

26


Remuneration report 2009 continued

 

Subject to certain conditions, and with the approval of the Board, each Executive Director is permitted to accept one appointment as a non-executive director in another company. The Director is permitted to retain any fees paid for such service. Details of fees received by Executive Directors in 2009 are as follows:

 

Ken Hanna (to 30 April 2009)

   £18,000    (Inchcape plc)

Todd Stitzer

   £76,250    (Diageo plc)

Chairman and Non-Executive Directors

Unless otherwise determined by the Board, Non-Executive Directors are appointed for terms of three years with a maximum term of nine years. All the Directors listed below were appointed for three year terms expiring on the dates shown. Fees for Non-Executive Directors are determined by the Board within the limits set by the Articles of Association. All Non-Executive Directors chose to utilise a percentage of their fees (between 12% and 100%) to purchase shares in the Company, which were bought within five business days of each relevant payment, as a matter of good practice. Each Non-Executive Director had undertaken to hold such shares during the time or his or her appointment. Non-Executive Directors do not have service contracts with the Company.

 

Non-Executive Directors

  

Date of initial appointment

to Board

  

Expiry date of current term

  

Member of Remuneration
Committee?

Dr Wolfgang Berndt

   17 Jan 2002    18 Feb 2011    Chair

Roger Carr

   22 Jan 2001    20 July 2011    Yes

Colin Day

   1 Dec 2008    1 Dec 2011    No

Guy Elliott

   27 July 2007    27 July 2010    No

Baroness Hogg

   24 Oct 2008    24 Oct 2011    Yes

Lord Patten

   1 July 2005    1 July 2011    No

Raymond Viault

   1 Sep 2006    1 Sep 2012    Yes

Fees for the Independent Non-Executive Directors were increased with effect from 1 April 2009 to bring them into line with the median of the current market rates. Mr Carr, the Chairman, is provided with a car and driver for business purposes as required.

Remuneration Committee Members and Advisors

The members of the Remuneration Committee are shown above. No members of the Committee resigned or were appointed during the year. Mr Carr excepted, all members of the Committee are regarded as Independent Non-Executive Directors and all were members of the Board and Committee at the year end. No other person was a member of the Committee at a time when any matter relating to the Executive Directors’ remuneration for 2009 was considered. No Committee member has a personal financial interest (other than as a shareholder), conflicts of interest arising from cross-directorships, or day-to-day involvement in any other related business. Other Directors and employees who attend some or all of the meetings or who provided material, advice or services to the Committee during the year were:

 

Todd Stitzer    Chief Executive Officer
Chris Van Steenbergen    Chief Human Resources Officer
Ken Hanna    Chief Financial Officer until 3 April 2009
Andrew Bonfield    Chief Financial Officer from 3 April 2009
Don Mackinlay    Global Rewards Director
John Mills    Director of Group Secretariat and Secretary to the Committee
Liz Spencer    International Rewards Director

Chris Van Steenbergen, Don Mackinlay, John Mills and Liz Spencer 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

 

Cadbury Report & Accounts 2009

27


sought advice from PriceWaterhouseCoopers LLP in respect of award arrangements. Representatives of both firms have attended meetings or have provided advice to the Committee. This advice included information on the remuneration practices of consumer product companies similar to the Company in size and standing, including competitors and other businesses which trade on a worldwide basis. PriceWaterhouseCoopers LLP also provided a broad range of tax, share scheme and advisory services to the Group during 2009. Slaughter and May advised the Committee on legal and regulatory issues and provided advice on a broad range of legal issues to the Group during 2009.

The Committee met on five occasions in 2009.

Directors’ remuneration report

Audited information

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. One individual left the CEC in 2009 and two new members were appointed to the Committee. Remuneration shown for the CEC includes remuneration paid to the CEC members who left the Group as part of their termination packages. In 2009, there were a maximum of 16 individuals at any one time who were members of the CEC but who were not Executive Directors.

Directors’ remuneration summary (table one)

 

     2009
£000
   2008
£000

Total remuneration:

     

Fees as Directors

   902    894

Salaries and other benefits

   3,071    3,271

Payments made to former Directors (a)

   2,217    —  

Annual Incentive Plan/Bonus Share Retention Plan awards (b)

   2,640    4,920

Gains on share plans

   3,714    3,302

Pensions paid to former Executive Directors

   37    35

Notes

(a) These amounts relate to base salary, AIP and other employment costs in relation to Mr. Stack (who resigned as a Director on 31 December 2008 but who was employed until 17 July 2009) and Mr. Hanna (who resigned as Director on 3 April 2009 but who was employed until 30 April 2009).
(b) These amounts relate to the Annual Incentive Plan awards for each year. The total shown for 2008 includes the service related match awarded under the Bonus Share Retention Plan to each Director based on the AIP award which they invested in March 2009. The performance-related matching award is shown in table five.

Executive Directors’ and CEC members’ remuneration (table two)

 

     Base salary
£000
   Allowances
(a)
£000
   Other
benefits
(a)
£000
   AIP
(b)
£000
   2009
total
£000
   2008
total
£000

Andrew Bonfield (c)

   450    194    233    667    1,544    —  

Ken Hanna (d)

   164    55    —      240    459    2,081

Todd Stitzer (e)

   1,167    672    124    1,733    3,696    4,098

CEC members (f)(g)

   4,976    2,010    1,173    7,208    15,367    13,039

 

Cadbury Report & Accounts 2009

28


Directors’ and CEC members’ gains on share plans (table three)

 

     BSRP
performance
awards
earned in
2009

£000
   LTIP awards
earned  in
2009
£000
   Gains on
exercise  of
share options
£000
   2009
total
£000
   2008
total
£000

Andrew Bonfield (c)

   —      —      —      —      —  

Ken Hanna (d)

   236    694    916    1,846    792

Todd Stitzer

   476    1,392    —      1,868    1,080

CEC members (f)

   1,205    2,682    357    4,244    2,631

Notes to tables two and three above

(a) Allowances and Other Benefits are explained on page 19.
(b) The total AIP award shown was awarded in respect of 2009 performance. AIP is described on page 19. BSRP and LTIP awards earned in 2009 vested on 2 February 2010 as explained on page 20. The value shown in table three is based on an indicative share price of £8.405, the mid-market price of a share on the London Stock Exchange on 2 February 2010.
(c) Mr Bonfield was appointed as a Director on 3 April 2009. He was granted a restricted ISAP award in February 2009 over 200,000 shares, which vested on 2 February 2010 in accordance with the plan rules. The mid-market price of a Cadbury plc share on the date of grant of this award was £5.39.
(d) Mr Hanna resigned as a Director on 3 April 2009.
(e) Mr Stitzer’s base salary, AIP and other benefits are calculated and paid in US dollars. His 2009 salary was as follows: US$1,827,000; (2008: US$1,821,312).
(f) For all remuneration, the aggregate amounts shown for the CEC are only those amounts paid to individuals whilst they were CEC members, and includes ISAP awards released during the year. The ISAP is described in Note 26 to the Accounts.
(g) In addition, payments were made in connection with the cessation of employment of some CEC members. The terms of such payments include provision for the Group to recover all or part of these payments in certain situations (such as the former member finding suitable alternative employment within a specified timeframe). In 2009, a net amount of £240,000 was received from former CEC members compared to a net payment of £6,331,000 made in 2008.

Non-executive Directors’ fees and benefits (table four)

 

     Other
benefits (a)

£000
   Board fee
£000
   Fee  for
chairing
a committee
£000
   2009
total
£000
   2008
total
£000

Dr Wolfgang Berndt

   2    59    14    75    71

Roger Carr

   —      59    391    450    259

Colin Day

   —      59    15    74    5

Guy Elliott

   —      59    20    79    76

Baroness Hogg

   —      59    —      59    10

Lord Patten

   —      59    14    73    65

Raymond Viault

   10    94    —      104    89

Notes

(a) Other benefits were a travel allowance for certain non-executives. None of the non-executives received any other emoluments during the 2009 financial year.

 

Cadbury Report & Accounts 2009

29


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
performance-
related award

in respect  of
AIP earned in
2006 to 2008
(a)
   Maximum
performance-
related award

in respect  of
AIP earned in
2009

(b)
   Shares vested
in respect  of
AIP earned in
2006
(c)
   Interest in
shares lapsed  in
respect of AIP
earned in

2006
(d)
   Total of
maximum
performance-
related awards

in respect of
AIP earned in
2007 to 2009

(e)

Andrew Bonfield

   —      —      —      —      —  

Ken Hanna

   36,094    —      28,025    8,069    —  

Todd Stitzer

   345,919    —      56,631    —      289,288

CEC members

   888,770    —      143,372    21,595    723,803

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 for the 2007-2009, 2008-2010 and 2009-2011 cycles. The 2007-2009 and 2008-2010 awards were originally made in Cadbury Schweppes plc shares, exchanged for Cadbury plc shares in May 2008. The maximum awards for the 2007-09 cycles were fair valued at the time of the demerger.
(b) No BSRP awards will be made in 2010 following the change of control on 2 February 2010.
(c) The mid-market price of a Cadbury Schweppes plc share on 4 March 2007 when the awards were made was £5.41. These awards vested on 2 February 2010 as explained on page 19. The awards were fair valued at the time of the demerger of the Americas Beverages business. Qualifying conditions for these awards are set out on page 20.
(d) No awards lapsed for the 2007-09 cycle as the shares that vested represented the maximum available following the demerger. For CEC leavers who left during the year, a proportion of shares lapsed in accordance with the rules of the plan.
(e) All awards are in shares. As at 31 December 2009, qualifying conditions for the awards shown above had to be fulfilled by 31 December 2011 at the latest. The maximum performance related award in respect of AIP earned in 2007 to 2009 was fair valued at the time of demerger, and reduced accordingly. All awards vested on 2 February 2010 as described on page 20.

Directors’ and CEC members’ interests in the Long-Term Incentive Plan (table six)

 

     Interest in
shares at 31

December
2008

(a)
   Interest In
shares
awarded in
2009

(b)
   Shares
vested

(c)
   Interest  in
shares
lapsed

(d)
   Interest in
shares as at
31 December
2009

(e)
   2005 –  2007
Dividend
Shares
awarded
and vesting

(g)

Andrew Bonfield

   —      275,561    —      —      275,561    n/a

Ken Hanna

   263,214    —      82,521    111,104    69,589    n/a

Todd Stitzer

   453,466    469,889    165,669    —      757,686    n/a

CEC members

   972,738    1,144,598    353,122    110,291    1,653,923    n/a

Notes

(a) Interests as at 31 December 2009 are potential interests shown at their maximum number in respect of the 2006–2008, 2007-2009 and 2008-2010 cycles. The 2006-2008 and 2007-2009 awards were originally made in Cadbury Schweppes plc shares, exchanged for Cadbury plc shares in May 2008. The maximum awards for these cycles were fair valued at the time of the demerger.
(b) The interests in shares awarded in 2009 relate to the 2009–2011 cycle other than for Mr Bonfield where they include an award in respect of the 2008-2010 cycle, made in accordance with the Plan rules. The mid-market price on 18 February 2009 when these awards were made was £5.195. The criteria under which these awards vested are explained on page 19.
(c) Shares due to vest on 4 March 2010 were in respect of the 2007–2009 cycle. These awards were fair valued at the time of the demerger. The mid-market price of a Cadbury Schweppes plc share on 29 March 2007 when the awards were made was £5.44.
(d) All interests in shares in respect of the 2007–2009 cycle which did not vest lapsed at the end of the financial year.
(e) Interests as at 31 December 2009 are potential interests shown at their maximum number in respect of the 2008-2010 cycle.
(f) Dividend shares are in respect of awards released from trust in 2009 in respect of the 2005-2007 cycle, paid in accordance with ABI guidelines.
(h) All awards are in shares. As at 31 December 2009, qualifying conditions for the awards shown above had to be fulfilled by 31 December 2011 at the latest. All awards vested on 2 February 2010 as described on page 20.

 

Cadbury Report & Accounts 2009

30


Executive Directors’ US pension and retirement benefit arrangements (table seven)

 

     Accrued
pension at

1  January
2010

£000
   Increase
in
accrued
pension
during
the year
£000
   Transfer
value of
accrued
pension at
1 January
2010
£000
   Transfer
value of
accrued
pension at

1  January
2009
£000
   Increase
in transfer
value over
the year, less

Directors’
contributions
£000
   Increase
in
accrued
pension
during the

year
(net of
inflation)
£000
   Transfer
value of

the increase
in accrued
pension

(net of
inflation)
less
Directors’
contributions
£000

Todd Stitzer

   1,645    316    17,374    13,500    3,874    283    2,985

Notes

(a) The accrued pension represents 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.
(b) The transfer values have been calculated in accordance with regulations 7 and 7E of the Occupational Pension Schemes (Transfer Values) Regulations 1996, as amended 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.
(c) The aggregate amount set aside in 2009 to provide for pensions and post-retirement medical benefits for the Executive Directors and CEC members was £1.9 million. This consists of approved pension arrangements of £0.6 million, unapproved pension arrangements of £1.3 million and post retirement medical retirement benefits of £31,869. Arrangements made in local currencies were converted using the 2008 year end spot rate.

Directors’ and CEC members’ options over ordinary shares of 10p each (table eight)

 

Name of

Director and

Scheme

   As at
1 January
2009
   Exercised
(d)
   As at
31 December
2009  or

date of
resignation

(e)
   Exercise
price

£
   Market
price at
exercise
date (e)

£
   Gain
made  on

exercise
£000

(f)
  

Exercisable
from

  

to

Ken Hanna

                       

SOP04 (b)

   184,028    —      184,028    4.896    —      —      28 Aug 2007    30 Apr 2012

SOP04 (b)

   179,540    —      179,540    5.854    —      —      2 Apr 2008    30 Apr 2012

SAYE (c)

   4,218    —      4,218    3.917    —      —      1 Feb 2010    31 Jul 2010
         367,786               

Todd Stitzer

                       

SOP94 (a)

   246,867    —      246,867    5.314    —      —      1 Sep 2004    31 Aug 2011

SOP94 (a)

   269,310    —      269,310    5.375    —      —      24 Aug 2005    23 Aug 2012

SOP94 (a)

   298,850    —      298,850    3.916    —      —      10 May 2006    9 May 2013

SOP04 (b)

   293,547    —      293,547    4.896    —      —      28 Aug 2007    27 Aug 2014

SOP04 (b)

   254,946    —      254,946    5.854    —      —      2 Apr 2008    1 Apr 2015
      —      1,363,520               

CEC members (d)

   2,796,469    133,157    2,663,312    4.51    5.58    143    27 Mar 2002    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.
(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. The exercise price shown is the weighted average exercise price of options exercised in the year.
(e) Mr Hanna resigned as a Director on 3 April 2009 and his interests are shown as at 1 January 2009 and 3 April 2009.
(f) The market price of an ordinary share on 31 December 2009 (the last dealing day in the financial year) was £7.975. The highest and lowest market prices of an ordinary share in Cadbury plc in the year were £8.14 and £4.865 respectively.
(g) 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.
(h) All the above awards (other than options in all-employee plans granted since May 2008) were originally made in Cadbury Schweppes plc shares, exchanged for options over Cadbury plc shares at the time of the demerger.

 

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31


Share ownership (table nine)

 

     As at
1 January 2009

(or date of
appointment

if later)
   As at
31 December 2009

(or date of
resignation

if earlier)

Dr Wolfgang Berndt

   60,843    67,873

Andrew Bonfield (a)

   200,000    200,000

Roger Carr

   42,874    51,537

Colin Day

   —      12,852

Guy Elliott

   6,485    14,058

Ken Hanna (b)

   414,336    294,111

Baroness Hogg

   —      2,673

Lord Patten

   10,602    16,352

Todd Stitzer (c)

   642,059    790,863

Raymond Viault

   14,988    22,792

CEC members (c) (d)

   1,600,140    2,608,780

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) Mr Bonfield was granted a restricted ISAP award in February 2009 over 200,000 shares, which vested on 2 February 2010 in accordance with the rules of the plan. The mid-market price of a Cadbury plc share on the date the award was made was £5.39. Mr Bonfield’s shareholding shown above includes these conditional shares.
(b) Mr Hanna resigned as a Director on 3 April 2009.
(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) Shareholdings of CEC members also include conditional share awards, the release of which is dependent upon specified performance conditions.

Changes in the Directors’ share interests since the year end (unaudited)

There were the following changes in the Directors’ share interests between 1 January 2010 and 2 February 2010:

The Non-executive Directors elected to surrender part of their Directors’ fees and on 4 January 2010 purchased the following number of shares at a price of £8.03 per share:

 

Dr Wolfgang Berndt

   1,389

Roger Carr

   1,621

Colin Day

   741

Guy Elliott

   1,332

Baroness Hogg

   556

Lord Patten

   1,158

Raymond Viault (a)

   1,436

 

(a) Purchased ADRs equivalent to the number of shares shown on 4 January 2010 at a price of US$51.95 per ADR.

On 2 February 2010, as explained above, the offer by Kraft Foods Inc to purchase the entire issued and to be issued share capital of Cadbury plc was declared unconditional. All the Directors accordingly disposed of their entire interests in Shares after that date.

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.

By order of the Board

Dr Wolfgang Berndt

Chairman of the Remuneration Committee

9 March 2010

 

Cadbury Report & Accounts 2009

32


Statement of Directors’ responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors:

 

   

properly select and apply accounting policies;

 

   

present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

 

   

provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and

 

   

make an assessment of the company’s ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Independent Auditors’ report to the members of Cadbury plc

We have audited the financial statements of Cadbury plc for the year ended 31 December 2009 which comprise the Group Income Statement, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group Statement of Changes in Equity, the Group Statement of Recognised Income and Expense, the Group segmental reporting and the related notes 1 to 40. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

 

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33


Respective responsibilities of directors and auditors

As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

Opinion on financial statements

In our opinion:

 

 

the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 December 2009 and of the group’s profit for the year then ended;

 

 

the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and

 

 

the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Separate opinion in relation to IFRSs as issued by the IASB

As explained in note 1(b) to the financial statements, the group in addition to applying IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).

In our opinion the group financial statements comply with IFRSs as issued by the IASB.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

 

 

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

 

 

the parent company financial statements are not in agreement with the accounting records and returns; or

 

 

certain disclosures of directors’ remuneration specified by law are not made; or

 

 

we have not received all the information and explanations we require for our audit.

James V Niblett (Senior Statutory Auditor)

for and on behalf of Deloitte LLP

Chartered Accountants and Statutory Auditors

London, UK

9 March 2010

 

Cadbury Report & Accounts 2009

34


Financial statements

Consolidated income statement for the year ended 31 December 2009

 

Notes

        2009
Underlying1

£m
    2009
Non-
underlying 2
£m
    2009
Total
£m
    Re-presented
2008
Underlying1,3

£m
    Re-presented
2008
Non-underlying2 ,3
£m
    2008
Total
£m
 
   Continuing operations             

2

   Revenue    5,975      —        5,975      5,384      —        5,384   

3

   Trading costs    (5,167   (48   (5,215   (4,746   (57   (4,803

4

   Restructuring costs    —        (164   (164   —        (194   (194

5

   Non-trading items    —        (89   (89   —        1      1   
   Profit from operations    808      (301   507      638      (250   388   

17

   Share of result in associates    7      —        7      10      —        10   
   Profit before financing and taxation    815      (301   514      648      (250   398   

9

   Investment revenue    33      3      36      25      27     52   

10

   Finance costs    (134   (38   (172   (141   91      (50
   Profit before taxation    714      (336   378      532      (132   400   

11

   Taxation    (197   94      (103   (148   118      (30
   Profit for the period from continuing operations    517      (242   275      384      (14   370   

32

   Discontinued operations             
   Profit/(loss) for the period from discontinued operations    2      233      235      85      (89   (4
   Profit for the period    519      (9   510      469      (103   366   
   Attributable to:             
   Equity holders of the parent    518      (9   509      467      (103   364   
   Minority interests    1      —        1      2      —        2   
      519      (9   510      469      (103   366   
   Earnings per share from continuing and discontinued operations             

13

   Basic    38.0     37.4   29.0     22.6

13

   Diluted    37.9     37.3   28.9     22.6
   From continuing operations             

13

   Basic    37.9     20.1   23.7     22.8

13

   Diluted    37.8     20.1   23.7     22.8

 

1

Before items described in Note 2 below.

2

Includes restructuring costs, non-trading items, amortisation and impairment of acquisition intangibles, IAS 19 pension financing charge/(credit), IAS 39 adjustment, any exceptional items and the associated tax effects as set out in Note 1(y) to the financial statements.

3

References to re-presented information refer to the representation of 2008 information for the inclusion of the IAS 19 pension financing charge/(credit) in non-underlying in the income statement as set out in Note 1 (a) to the financial statements.

 

Cadbury Report & Accounts 2009

35


Financial statements continued

 

Consolidated statement of recognised income and expense for the year ended 31 December 2009

 

     2009
£m
    2008
£m
 

Currency translation differences

   (190   580   

Exchange gain transferred to income and expense on disposal of operations

   (6   —     

Actuarial loss on post retirement benefit obligations (net of tax)

   (200   (291

Net (expense)/income recognised directly in equity

   (396   289   

Profit for the period from continuing operations

   275      370   

Profit/(loss) for the period from discontinued operations

   235      (4

Total recognised income and expense for the period

   114      655   

Attributable to:

    

Equity holders of the parent

   113      653   

Minority interests

   1      2   
   114      655   

 

Cadbury Report & Accounts 2009

36


Registered Number 6497379

Financial statements continued

Balance Sheets at 31 December 2009

 

        Group     Company  

Notes

      2009
£m
    Re-presented
2008

£m
    Re-presented
31 Dec 2007
£m
    2009
£m
    2008
£m
 
  Assets          
  Non-current assets          

14

  Goodwill   2,176      2,288      2,805      —        —     

15

  Acquisition intangibles   1,518      1,598      3,378      —        —     

15

  Software and other intangibles   108      87      149      —        —     

16

  Property, plant and equipment   1,869      1,761      1,904      —        —     

17

  Investment in associates   28      28      32      —        —     

17

  Investment in subsidiaries   —        —        —        7,791      7,762   

24

  Deferred tax assets   241      181      124      —        —     

25

  Retirement benefit assets   —        17      223      —        —     

20

  Trade and other receivables   55      28      50      —        —     

18

  Other investments   1      2      2      —        —     
    5,996      5,990      8,667      7,791      7,762   
  Current assets          

19

  Inventories   748      767      821      —        —     
  Short-term investments   29      108      79      —        —     

20

  Trade and other receivables   978      1,067      1,197      70      210   
  Tax recoverable   42      35      41      —        —     
  Cash and cash equivalents   237      390      416      —        —     

27

  Derivative financial instruments   91      268      46      —        —     
    2,125      2,635      2,600      70      210   

21

  Assets held for sale   8      270      71      —        —     
  Total assets   8,129      8,895      11,338      7,861      7,972   
  Liabilities          
  Current liabilities          

22

  Trade and other payables   (1,577   (1,551   (1,701   (126   (65
  Tax payable   (226   (328   (197   —        —     

27

  Short-term borrowings and overdrafts   (267   (1,189   (2,562   —        —     

23

  Short-term provisions   (269   (150   (111   —        —     

32

  Obligations under finance leases   (1   (1   (21   —        —     

27

  Derivative financial instruments   (94   (169   (22   —        —     
    (2,434   (3,388   (4,614   (126   (65
  Non-current liabilities          

22

  Trade and other payables   (65   (61   (37   —        —     

27

  Borrowings   (1,349   (1,194   (1,120   —        —     

25

  Retirement benefit obligations   (504   (275   (143   —        —     
  Tax payable   (4   (6   (16   —        —     

24

  Deferred tax liabilities   (163   (121   (1,145   —        —     

23

  Long-term provisions   (84   (218   (61   —        —     

32

  Obligations under finance leases   (1   (1   (11   —        —     

27

  Derivative financial instruments   (3   —        —        —       
    (2,173   (1876   (2,533   —        —     

21

  Liabilities directly associated with assets classified as held for sale   —        (97   (18   —        —     
  Total liabilities   (4,607   (5,361   (7,165   (126   (65
  Net assets   3,522      3,534      4,173      7,735      7,907   
  Equity          

29

  Share capital   137      136      264      137      136   

29

  Share premium account   97      38      1,225      97      38   

29

  Other reserves   654      850      (4   7,605      7,605   

29

  Retained earnings   2,614      2,498      2,677      (104   128   

29

  Equity attributable to equity holders of the parent   3,502      3,522      4,162      7,735      7,907   

30

  Minority interests   20      12      11      —        —     
  Total equity   3,522      3,534      4,173      7,735      7,907   

The balance sheets at 31 December 2007 and 31 December 2008 have been re-presented to reclassify certain amounts between cash and cash equivalents and short terms investments (see note 1(s))

On behalf of the Board

 

Directors:    Todd Stitzer    Andrew Bonfield

9 March 2\010

 

Cadbury Report & Accounts 2009

37


Financial statements continued

 

Consolidated cash flow statement for the year ended 31 December 2009

 

          Group  

Notes

        2009
£m
    2008
represented1
£m
 

35

   Net cash inflow from operating activities    523      469   
   Investing activities     

17

   Dividends received from associates    7      10   
   Proceeds on disposal of property, plant and equipment    8      18   
   Purchases of property, plant and equipment and software    (408   (500
   Americas Beverages separation costs paid    7      (107
   Americas Beverages net cash and cash equivalents demerged    —        (67

31

   Acquisitions of businesses and associates    (11   16   
   Sale of investments, associates and subsidiary undertakings    529      48   

30

   Transaction with minority    8      —     
   Cash removed on disposal    2      (4
   Acquisitions and disposals    528      60   
   Movement in equity investments and money market deposits    82      (29
   Net cash generated from/(used in) investing activities    224      (615
   Net cash inflow/(outflow) before financing activities    747      (146
   Financing activities     
   Dividends paid    (226   (295
   Capital element of finance leases repaid    —        (21
   Proceeds on issues of ordinary shares    60      58   
   Net movement of shares held under Employee Trust    17      12   
   Proceeds of new borrowings    6,869      4,382   
   Borrowings repaid    (7,507   (4,167
   Net cash used in financing activities    (787   (31
   Net decrease in cash and cash equivalents    (40   (177
   Opening net cash and cash equivalents – total Group    238      372   
   Effect of foreign exchange rates    2      43   
   Closing net cash and cash equivalents    200      238   

 

1

The 2008 cash flow statement has been re-presented to reclassify certain amounts between cash and cash equivalents and short terms investments (see note 1(s))

Net cash and cash equivalents include overdraft balances of £37 million (2008: £152 million). There are no cash and cash equivalents included in assets held for sale.

The Company had no cash flows and therefore a cash flow statement is not presented. A reconciliation of cash flow from operations for the Group is included in Note 35.

 

Cadbury Report & Accounts 2009

38


Financial statements continued

 

Consolidated Statement of Changes in Equity

 

    Share
capital
£m
    Share
capital
beverages
£m
    Share
premium
£m
    Capital
redemption
reserve

£m
    Demerger
reserve
£m
    Hedging  and
translation
reserve

£m
    Acquisition
revaluation
reserve

£m
    Retained
earnings
£m
    Total
£m
 

Note

  29(a)     29(b)     29(b)           29(b)     29(b)     29(b)     29(b)        

At 1 January 2008

  264      —        1,225      90      —        (139   45      2,677      4,162   

Currency translation differences (net of tax)

  —        —        —        —        —        580      —        —        580   

Unwind of acquisition revaluation reserve

  —        —        —        —        —        —        (3   3      —     

Credit from share based payment and movement in own shares

  —        —        —        —        —        —        —        24      24   

Actuarial gains on defined benefit pension schemes (net of tax)

  —        —        —        —        —        —        —        (291   (291

Shares issued – Cadbury Schweppes plc

  1      —        19      —        —        —        —        —        20   

Scheme of Arrangement

  6,765      3,805      —        —        (10,570   —        —        —        —     

Capital reduction

  (6,630   (3,805   —        —        10,435      —        —        —        —     

Elimination of Cadbury Schweppes plc reserves

  (265   —        (1,244   (90   1,641      —        (42   —        —     

Demerger of Americas Beverages

  —        —        —        —        (1,097   —        —        —        (1,097

Transfer of shares in DPSG to other investments

  —        —        —        —        —        —        —        16      16   

Shares issued – Cadbury plc

  1      —        38      —        —        —        —        —        39   

Profit for the period attributable to equity holders of the parent

  —        —        —        —        —        —        —        364      364   

Dividends paid

  —        —        —        —        —        —        —        (295   (295

At 31 December 2008

  136      —        38      —        409      441      —        2,498      3,522   

Currency translation differences

  —        —        —        —        —        (190   —        —        (190

Exchange gain transferred on disposal of operations

  —        —        —        —        —        (6   —        —        (6

Credit from share based payment and movement in own shares

  —        —        —        —        —        —        —        33      33   

Actuarial loss on defined benefit pension schemes (net of tax)

  —        —        —        —        —        —        —        (200   (200

Shares issued – Cadbury plc

  1      —        59      —        —        —        —        —        60   

Profit for the period attributable to equity holders of the parent

  —        —        —        —        —        —        —        509      509   

Dividends paid

  —        —        —        —        —        —        —        (226   (226

At 31 December 2009

  137      —        97      —        409      245      —        2,614      3,502   

 

Cadbury Report & Accounts 2009

39


Financial statements continued

 

Company

 

     Share
capital
£m
    Share  capital
beverages
£m
    Share
premium
£m
   Demerger
reserve
£m
    Retained
earnings
£m
    Total
£m
 

At 7 February 2008 (on incorporation)

   —        —        —      —        —        —     

Shares issued

   6,765      3,805      —      1,575      —        12,145   

Capital reduction

   (6,630   (3,805   —      10,435      —        —     

Demerger of Americas Beverages

   —        —        —      (4,405 )   —        (4,405 )

Shares issued

   1      —        38    —        —        39   

Dividends paid

   —        —        —      —        (73   (73

Share based payment*

   —        —        —      —        22      22   

Profit for the period

   —        —        —      —        179      179   

At 31 December 2008

   136      —        38    7,605      128      7,907   

Shares issued

   1      —        59    —        —        60   

Dividends paid

   —        —        —      —        (226   (226

Share based payment*

   —        —        —      —        29      29   

Loss for the period

   —        —        —      —        (35   (35

At 31 December 2009

   137      —        97    7,605      (104   7,735   

 

* Non-distributable

 

Cadbury Report & Accounts 2009

40


Financial statements continued

 

Segmental reporting

(a) Business segment analysis

 

     2009
     Reported measures    Segment measures
     Revenue
£m
   Profit  from
operations
£m
    Operating
margins
%
   Revenue
£m
   Underlying
profit from
operations
£m
    Underlying
margins
%

Britain and Ireland

   1,366    116      8.5    1,366    178      13.0

Middle East and Africa

   454    54      11.9    454    55      12.1

Europe

   1,117    17      1.5    1,117    123      11.0

North America

   1,364    277      20.3    1,364    287      21.0

South America

   462    82      17.7    462    85      18.4

Pacific

   779    115      14.8    779    137      17.6

Asia

   425    52      12.2    425    52      12.2
   5,967    713      11.9    5,967    917      15.4

Central

   8    (206   n/a    8    (109   n/a
   5,975    507      8.5    5,975    808      13.5

An explanation of segment performance measures is included in Note 1(e).

Reconciliation of profit from operations and profit before taxation to underlying performance measure

 

     2009  
     Reported
performance
£m
    Reversal of
restructuring
costs
£m
   Reversal of
amortisation
and
impairment  of
intangibles
£m
   Reversal of
non-trading
items
£m
    Reversal of
IAS 19  pension
financing
Charge (credit)
£m
   IAS 39
adjustment
£m
    Underlying
profit from
operations
£m
 

Britain and Ireland

   116      42    —      —        —      20      178   

Middle East and Africa

   54      4    —      (1   —      (2   55   

Europe

   17      86    2    4      —      14      123   

North America

   277      2    2    —        —      6      287   

South America

   82      2    —      1      —      —        85   

Pacific

   115      17    —      (1   —      6      137   

Asia

   52      —      —      —        —      —        52   

Central

   (206   11    —      86      —      —        (109

Profit from operations

   507      164    4    89      —      44      808   

Share of results in associates

   7      —      —      —        —      —        7   

Financing

   (136   2    —      7      8    18      (101

Profit before taxation

   378      166    4    96      8    62      714   

An explanation of the reconciling items between reported and underlying performance measures is included in Note 1(y).

 

Cadbury Report & Accounts 2009

41


Financial statements continued

 

     Re-presented1
2008
     Reported measures    Segment measures
     Revenue
£m
   Profit  from
operations
£m
    Operating
margins
%
   Revenue
£m
   Underlying
profit from
operations
£m
    Underlying
margins
%

Britain and Ireland

   1,269    81      6.4    1,269    139      11.0

Middle East and Africa

   376    26      6.9    376    34      9.0

Europe

   1,097    44      4.0    1,097    115      10.5

North America

   1,201    218      18.2    1,201    231      19.2

South America

   430    78      18.1    430    84      19.5

Pacific

   664    72      10.8    664    106      16.0

Asia

   338    34      10.1    338    37      10.9
   5,375    553      10.3    5,375    746      13.9

Central

   9    (165   n/a    9    (108   n/a
   5,384    388      7.2    5,384    638      11.9

An explanation of segment performance measures is included in Note 1(e).

Reconciliation of profit from operations and profit before taxation to underlying performance measure

 

     Re-presented1
2008
 
     Reported
performance
£m
    Reversal of
restructuring
costs
£m
   Reversal of
amortisation
and
impairment  of
intangibles
£m
   Reversal of
non-trading
items
£m
    Reversal of
IAS 19  pension
financing
charge (credit)
£m
    IAS 39
adjustment
£m
    Underlying
profit from
operations
£m
 

Britain and Ireland

   81      14    —      9      —        35      139   

Middle East and Africa

   26      7    —      —        —        1      34   

Europe

   44      63    2    —        —        6      115   

North America

   218      11    2    (4   —        4      231   

South America

   78      7    —      (1   —        —        84   

Pacific

   72      29    —      (2   —        7      106   

Asia

   34      3    —      —        —        —        37   

Central

   (165   60    —      (3   —        —        (108

Profit from operations

   388      194    4    (1   —        53      638   

Share of results in associates

   10      —      —      —        —        —        10   

Financing

   2      3    —      —        (27   (94   (116

Profit before taxation

   400      197    4    (1   (27   (41   532   

 

1

The Group has re-presented its segmental analysis for the comparative 2008 financial information to represent the new Business Unit structure as this is consistent with the way in which the Chief Operating Decision Maker reviews the results of the operating segments. 2008 has also been represented for the inclusion of the IAS 19 pension financing result as a non-underlying item in the income statement.

An explanation of the reconciling items between reported and underlying performance measures is included in Note 1(y).

 

Cadbury Report & Accounts 2009

42


Financial statements continued

 

(b) Other Business Segment Items

 

     2009
           Property, plant and equipment
and  software intangible additions:
          
     Acquisition
of  Intangibles
£m
    - excluding
acquired
subsidiaries
£m
   - acquired
subsidiaries
£m
    Depreciation
and  amortisation
of software
intangibles
£m
   Amortisation
and  Impairment
of intangibles
£m

Britain and Ireland

   —        54    —        56    —  

Middle East and Africa

   —        27    —        14    —  

Europe

   —        146    —        51    2

North America

   —        50    —        41    2

South America

   —        21    —        12    —  

Pacific

   —        57    —        25    —  

Asia

   —        30    —        12    —  

Central

   23      1    —        11    —  

Continuing Operations

   23      386    —        222    4

Discontinued Operations

            

Australia Beverages

   —        3    —        —      —  
   23      389    —        222    4
     Re-presented1
2008
           Property, plant and equipment
and software intangible additions:
          
     Acquisition
of Intangibles
£m
    - excluding
acquired
subsidiaries
£m
   - acquired
subsidiaries
£m
    Depreciation
and amortisation
of software
intangibles

£m
   Amortisation
and Impairment
of intangibles
£m

Britain and Ireland

   —        58    —        53    —  

Middle East and Africa

   —        19    —        13    —  

Europe

   (8   178    (14   33    2

North America

   —        68    —        38    2

South America

   —        16    —        10    —  

Pacific

   —        42    —        19    —  

Asia

   —        33    —        10    —  

Central

   —        13    —        16    —  

Continuing Operations

   (8   427    (14   192    4

Discontinued Operations

            

Americas Beverages

   (3   61    4      23    8

Australia Beverages

   —        16    —        17    —  
   (11   504    (10   232    12

 

1

The Group has re-presented its segmental analysis for the comparative 2008 financial information to represent the new Business Unit structure as this is consistent with the way in which the Chief Operating Decision Maker reviews the results of the operating segments.

(c) Significant country revenue and non current assets

Revenue generated by UK businesses was £1,211 million (2008: £1,123 million). Non-current assets of £451 million (2008: £462 million) are held by the Group’s UK businesses. Revenue generated by US businesses was £719 million (2008: £597 million).

 

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Financial statements continued

 

1. Nature of operations and accounting policies

(a) Nature of operations and segmental results

Cadbury plc (the “Company”) and its subsidiaries and associated undertakings (the “Group”) is an international confectionery business which sells its products in almost every country in the world. The origins of the business stretch back over 200 years. Cadbury has a broad portfolio of well established regional and local brands which include Cadbury, Trident, Halls, Green & Blacks, The Natural Confectionery Co., Dentyne and Hollywood.

The discontinued operations relate to the beverage business in America which was demerged in 2008 and in Australia which was disposed of in 2009. The Income Statement and related notes classify these businesses as discontinued, in accordance with IFRS 5, “Non-current assets held for sale and discontinued operations” as described in Note 32. The re-presentation of 2008 information relates to the inclusion of the IAS 19 pension financing result in non-underlying as set out below and the reclassification of certain cash and short-term investment balances (refer to note 1(s)). The inclusion of the IAS 19 pension financing result within non-underlying resulted in a decrease to underlying profit before tax of £27 million in 2008.

Significant measures used by management in assessing segmental performance include revenue, underlying profit from operations (profit from operations before restructuring costs, non-trading items, amortisation and impairment of acquisition intangible, exceptional items and IAS 39 adjustment) and underlying operating margins (operating margins before restructuring costs, non-trading items, amortisation and impairment of acquisition intangibles, exceptional items and IAS 39 adjustment).

(b) Accounting convention

The financial statements are prepared under the historical cost convention, except for the revaluation of financial instruments, and on a going concern basis as disclosed in the going concern statement in the Directors’ Report on page 7.

These financial statements have been prepared in accordance with IFRSs as endorsed and adopted for use in the EU and IFRSs as issued by the International Accounting Standards Board and therefore comply with Article 4 of the EU IAS Regulation, IFRIC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

Amendment to IFRS 2 – Share-based payments

Amendment to IFRS 9 – Financial Instruments

Amendment to IAS 24 – Related Party Disclosures

Amendment to IAS 32 – Financial Instruments: presentation

Amendment to IFRIC 14 – Prepayments of a Minimum Funding Requirement

IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments

The Directors do not expect that the adoption of these Standards and Interpretations in future periods will have a material impact on the financial statements of the Group

For the year ended 31 December 2009, the Group adopted IAS 1 (Revised) Presentation of Financial Statements. IAS 1 (Revised) requires the presentation of the Statement of Changes in Equity as a primary statement, separate from the Income Statement and Statement of Recognised Income and Expense. As a result, a condensed consolidated Statement of Changes in Equity has been presented as a primary statement.

The Group has also adopted the amendment to IAS 23 - Borrowing costs, requiring capitalisation of borrowing costs on qualifying capital expenditure incurred on significant projects that commenced after 1 January 2009. The amount of borrowing costs capitalised in the period was not significant.

The Group previously adopted IFRS 8 “Operating Segments”, in advance of its effective date, with effect from 1 January 2008.

 

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Financial statements continued

 

1. Nature of operations and accounting policies (continued)

 

The Group has applied the amendments to IAS 38 “Intangible assets” to its advertising and promotional expenditures effective for annual periods beginning on or after 1 January 2009, including the clarification of when a company recognises expenditure incurred in respect of the supply of goods and of services associated with advertising and promotional expenditure. As a result, advertising costs will now be recognised upon completion of the service rendered and costs of samples and catalogues will be recognised upon receipt or production of the goods. The Group has considered the need for retrospective application of this amendment but has concluded that this is not necessary on the grounds of materiality.

(c) Preparation of financial statements

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss account for the period.

(d) Basis of consolidation

The financial statements are presented in the form of Group financial statements. The Group financial statements consolidate the accounts of the Company and the entities controlled by the Company (including all of its subsidiary entities) after eliminating internal transactions and recognising any minority interests in those entities. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain economic benefits from its activities.

Minority interests are shown as a component of equity in the balance sheet and the share of profit attributable to minority interests is shown as a component of profit for the period in the consolidated income statement.

Results of subsidiary undertakings acquired during the financial year are included in Group profit from the effective date of control. The separable net assets, both tangible and intangible, of newly acquired subsidiary undertakings are incorporated into the financial statements on the basis of the fair value to the Group as at the effective date of control.

Results of subsidiary undertakings disposed of during the financial year are included in Group profit up to the effective date of disposal.

Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.

Entities in which the Group is in a position to exercise significant influence but does not have the power to control or jointly control are associated undertakings. Joint ventures are those entities in which the Group has joint control. The results, assets and liabilities of associated undertakings and interests in joint ventures are incorporated into the Group’s financial statements using the equity method of accounting.

The Group’s share of the profit after interest and tax of associated undertakings is included as one line below profit from operations. Investments in associated undertakings are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the entity. All associated undertakings have financial years that are coterminous with the Group’s, with the exception of Camelot Group plc (“Camelot”) whose financial year ends in March. The Group’s share of the profits of Camelot is based on its most recent, unaudited financial statements to 30 September.

(e) Segmental analysis

Business reportable segments

From 1 January 2009, the Group was reorganised into seven Business Units. Britain, Ireland, Middle East and Africa (BIMA) was split into two Business Units, Britain & Ireland and Middle East & Africa, Asia Pacific was split into Asia and Pacific, Americas was split into North America and South America and Europe remained unchanged.

 

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Financial statements continued

 

1. Nature of operations and accounting policies (continued)

 

The Group manages the segments as strategic business units. They are managed separately because of the differing market conditions and consumer tastes in the different geographies, which require differing branded products and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Basis of recharge of costs between segments

Certain central costs are considered to relate to the operating segments, for example where individuals have dual roles or services are provided by a Group function instead of external contractors, for example IT or legal services. These costs are recharged with a suitable mark-up and settled as other trading intercompany balances.

(f) Foreign currencies

Transaction differences arising from exchange rate variations of monetary items in trading transactions are included within profit from operations while those arising on financing transactions are recorded within investment revenue or finance costs, as appropriate. The functional currency of each of the Company’s subsidiaries is the currency of the primary economic environment in which the subsidiary operates which is generally the local currency in which each subsidiary is located. Monetary assets and liabilities denominated in a currency other than the functional currency of each of the Company’s subsidiaries are translated into the functional currency at the rates ruling at the end of the financial year.

The consolidated financial statements are prepared in pounds sterling. The balance sheets of overseas subsidiaries are translated into pounds sterling at the rates of exchange ruling at the end of the financial year. The results of overseas subsidiary undertakings for the financial year are translated into sterling at an annual average rate, calculated using the exchange rates ruling at the end of each month. Differences on exchange arising from the retranslation of opening balance sheets of overseas subsidiary undertakings (or date of control in the case of acquisitions during the year) to the rate ruling at the end of the financial year are taken directly to the Group’s translation reserve. In addition, the exchange differences arising from the translation of overseas profit and losses are taken directly to the Group’s translation reserve. Such translation differences are recognised as income or expense in the financial year in which the operations are disposed of.

Where subsidiaries operate in countries with hyperinflationary economies, the financial statements are stated in terms of the measuring unit currency at the balance sheet date, and corresponding figures for the previous year are restated in terms of the same measuring unit.

(g) Revenue

Revenue represents the invoiced value of sales and royalties excluding inter-company sales, value added tax and sales taxes that arise as a result of the Group’s sale of branded chocolate, gum and candy confectionery products and branded soft drinks. It is stated net of trade discounts, sales incentives, up-front payments, slotting fees and other non-discretionary payments.

Revenue is recognised when the significant risks and rewards of ownership of the goods have transferred to the buyer, the price is fixed or determinable and collection of the amount due is reasonably assured. A provision for sales returns is estimated on the basis of historical returns and is recorded so as to allocate these returns to the same period as the original revenue is recorded. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

(h) Research and development expenditure

Expenditure on research activities is recognised as an expense in the financial year in which it is incurred.

 

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Financial statements continued

 

1. Nature of operations and accounting policies (continued)

 

Development expenditure is assessed and capitalised if it meets all of the following criteria:

 

> an asset is created that can be identified;

 

> it is probable that the asset created will generate future economic benefits; and

 

> the development cost of the asset can be measured reliably.

Capitalised development costs are amortised over their expected economic lives. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the financial year in which it is incurred.

(i) Advertising costs

Advertising costs are recognised upon completion of the service rendered and costs of samples are recognised upon receipt or production of the goods. No amounts are capitalised for direct response advertising.

(j) Share-based payments

The Group issues equity settled share-based payments to certain employees. A fair value for the equity settled share awards is measured at the date of grant. Management measures the fair value using the valuation technique that they consider to be the most appropriate to value each class of award. Methods used include Binomial models, Black-Scholes calculations and Monte Carlo simulations. The valuations take into account factors such as non-transferability, exercise restrictions and behavioural considerations.

An expense is recognised to spread the fair value of each award over the vesting period on a straight-line basis, after allowing for an estimate of the share awards that will eventually vest. The estimate of the level of vesting is reviewed at least annually, with any impact on the cumulative charge being recognised immediately.

(k) Restructuring costs

The restructuring of the Group’s existing operations and the integration of acquisitions gives rise to significant incremental one-off costs. The most significant component of these restructuring costs is typically redundancy payments. The Group views restructuring costs as costs associated with investment in future performance of the business and not part of the Group’s trading performance. These costs have a material impact on the absolute amount of and trend in the Group profit from operations and operating margins. Therefore, such restructuring costs are shown as a separate line item within profit from operations on the face of the income statement. In 2009 and 2008, the Group has incurred costs of approximately 0.5% of revenue which are restructuring in nature but relate to the maintenance of an efficient business. These costs are termed business improvement costs and are included within the underlying operating results of the business as they are expected to be incurred each year and hence will not distort the performance trends of the business.

Restructuring costs and business improvement costs are recognised when the Group has a detailed formal plan for the restructuring that has been communicated to the affected parties. A liability is recognised for unsettled restructuring costs.

(l) Non-trading items

Cadbury’s trade is the marketing, production and distribution of branded confectionery. As part of its operations the Group may dispose of or recognise an impairment of subsidiaries, associates, investments, brands and significant fixed assets that do not meet the requirements to be separately disclosed outside of continuing operations, or recognise expenses relating to the separation of a business

 

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Financial statements continued

 

1. Nature of operations and accounting policies (continued)

 

or external advisor costs incurred in relation to the takeover approach by Kraft Foods Inc which does meet the requirements to be separately disclosed as a discontinued operation. These discrete activities form part of the Group’s operating activities and are reported in arriving at the Group’s profit from operations: however, management does not consider these items to be part of its 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. Consequently, these items can have a material impact on the absolute amount of and trend in the Group profit from operations and operating margins. Therefore any gains and losses (including transaction costs incurred) on these non-trading items are shown as a separate line item within profit from operations on the face of the income statement.

(m) Earnings per ordinary share

Basic earnings per ordinary share (EPS) is calculated by dividing the profit for the period attributable to equity holders of the parent by the weighted average number of shares in issue during the year. Diluted EPS is calculated by dividing the profit for the period attributable to equity holders of the parent by the weighted average number of shares in issue during the year increased by the effects of all dilutive potential ordinary shares (primarily share awards).

Underlying EPS represents basic EPS, adjusted in order to exclude amortisation and impairment of acquisition intangibles, restructuring costs, non-trading items, IAS 39 adjustments, the IAS 19 financing result associated with defined benefit pension accounting, exceptional items and associated tax effect as described in Note 1 (y).

(n) Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of the acquired entity at the date of the acquisition. Goodwill is recognised as an asset and assessed for impairment at least annually. Where applicable the asset is treated as a foreign currency item and retranslated at each year end. Where an impairment test is performed on goodwill, a discounted cash flow analysis is carried out based on the cash flows of the cash-generating unit (CGU) and comparing the carrying value of assets of the CGU with their recoverable amount. These cash flows are discounted at rates that management estimate to be the risk affected average cost of capital for the particular businesses. Any impairment is recognised immediately in the income statement.

Upon a step acquisition from associate to subsidiary, the acquiree’s assets and liabilities are recognised at their fair value in the Group’s balance sheet. Goodwill is calculated separately at each stage of the acquisition using the share of the fair value of net assets acquired. This gives rise to the creation of an IFRS 3 revaluation reserve as a separate component within equity which represents the fair value uplift attributable to the previously held share of assets and liabilities. A reserves transfer will be made to offset any incremental depreciation on the revalued assets.

Upon disposal of a subsidiary, associate or joint venture the attributable goodwill is included in the calculation of the profit or loss on disposal. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

(o) Acquisition intangibles

Brands

The main economic and competitive assets of the Group are its brands, including the Cadbury brand, some of which are not on the balance sheet as these are internally generated. The Group carries assets in the balance sheet only for major brands that have been acquired since 1986. Acquired brand values are calculated based on the Group’s valuation methodology, which is based on valuations of discounted cash flows. Intangible assets are treated as local currency assets and are retranslated to the exchange rate in effect at the end of the financial year. Where the Group licenses the use of a brand then there is no value recognised in the Group’s accounts.

 

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Financial statements continued

 

1. Nature of operations and accounting policies (continued)

 

No amortisation is charged on over 95% of brand intangibles, as the Group believes that the value of these brands is maintained indefinitely. The factors that result in the durability of brands capitalised is that there are no material legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of these intangibles. Furthermore:

 

> The Group is a brands business and expects to acquire, hold and support brands for an indefinite period. The Group supports these brands through spending on consumer marketing across the business and through significant investment in promotional support. The brands capitalised are expected to be in longstanding and profitable market sectors.

 

> The likelihood that market based factors could truncate a brand’s life is relatively remote because of the size, diversification and market share of the brands in question.

 

> The Group owns the trademark for all brands valued on the balance sheet and renews these for nominal cost at regular intervals. The Group has never experienced problems with such renewals.

Where a brand’s life is not deemed to be indefinite it is amortised over its expected useful life on a straight-line basis, with the lives reviewed annually.

Other

The Group also recognises certain other separately identifiable intangible assets at fair value on acquisition. These include customer relationships and customer contracts. Amortisation is charged on customer relationships and contracts over the expected recoverable life.

Impairment review

The Group carries out an impairment review of its tangible and definite life intangible assets when a change in circumstances or situation indicates that those assets may have suffered an impairment loss. Intangible assets with indefinite useful lives are tested for impairment at least annually and whenever there is an indication that the asset may be impaired. Impairment is measured by comparing the carrying amount of an asset or of a cash-generating unit with the ‘recoverable amount’, that is the higher of its fair value less costs to sell and its ‘value in use’. ‘Value in use’ is calculated by discounting the expected future cash flows, using a discount rate based on an estimate of the rate that the market would expect on an investment of comparable risk.

(p) Software and other intangibles

Where computer software is not an integral part of a related item of computer hardware, the software is treated as an intangible asset. Capitalised internal-use software costs include external direct costs of materials and services consumed in developing or obtaining the software, and payroll and payroll-related costs for employees who are directly associated with and who devote substantial time to the project. Capitalisation of these costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. These costs are amortised over their expected useful life on a straight-line basis, with the lives reviewed annually.

Other intangibles represents rights acquired under sponsorship agreements and are amortised over periods during which goods and services are received under terms of the contract.

(q) Property, plant and equipment and leases

Assets are recorded in the balance sheet at cost less accumulated depreciation and any accumulated impairment losses. Where the construction of an asset is over a significant period of time an imputed interest charge using the Group’s average effective interest rate is included in the cost recorded. Under UK GAAP, certain assets were revalued in 1995 and the depreciated revalued amount was treated as deemed cost on transition to IFRS.

 

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Financial statements continued

 

1. Nature of operations and accounting policies (continued)

 

Depreciation is charged (excluding freehold land and assets in course of construction) so as to write off the cost of assets to their residual value, over their expected useful lives using the straight-line method. The principal rates are as follows:

 

Freehold buildings and long leasehold properties

   2.5

Plant and machinery

   7% – 10

Vehicles

   12.5% – 20

Office equipment

   10% – 20

Computer hardware

   12.5% – 33

Assets in the course of construction are not depreciated until they are available for use, at which time they are transferred into one of the categories above and depreciated according to the rates noted.

Short leasehold properties are depreciated over the shorter of the estimated life of the asset and the life of the lease.

In specific cases different depreciation rates are used, e.g. high-speed machinery, machinery subject to technological changes or any machinery with a high obsolescence factor.

(q) Property, plant and equipment and leases (continued)

Where assets are financed by leasing agreements and substantially all the risks and rewards of ownership are substantially transferred to the Group (“finance leases”) the assets are treated as if they had been purchased outright and the corresponding liability to the leasing company is included as an obligation under finance leases. For property leases, the land and buildings elements are treated separately to determine the appropriate lease classification. Depreciation on assets held under finance leases is charged to the income statement on the same basis as owned assets. Leasing payments are treated as consisting of capital and interest elements and the interest is charged to the income statement as a financing charge. All other leases are “operating leases” and the relevant annual rentals are charged wholly to the income statement.

(r) Inventories

Inventories are recorded at the lower of average cost and estimated net realisable value. Cost comprises direct material and labour costs together with the relevant factory overheads (including depreciation) on the basis of normal activity levels. Amounts are removed from inventory based on the average value of the items of inventory removed.

(s) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.

Following clarification of the Group’s presentational accounting policy, the Group has re-presented certain amounts between cash and cash equivalents and short-term investments as defined in note 1 (x) to ensure the consistency of accounting policy across the Group. This has resulted in the re-presentation on the balance sheet as noted below. In accordance with IAS 1 (Revised), a balance sheet is also presented at the beginning of the period in which the representation occurred, at 31 December 2007.

 

     Re-presented
31 December
2008
£m
   As
previously
presented

31 December
2008
£m
   Re-presented
31 December
2007
£m
   As
previously
presented
31 December

2007
£m

Short term investments

   108    247    79    2

Cash and cash equivalents

   390    251    416    493

Short term investments and cash and cash equivalents

   498    498    495    495

 

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Financial statements continued

 

This also resulted in a re-presentation in the 2008 cash flow statement reducing amounts previously shown as a cash outflow on equity investments and money market deposits by £216 million with a related impact on opening and closing cash and cash equivalents.

There is no impact on net debt, the Group’s measure of liquidity, profit, current assets, total assets or shareholders’ equity of this re-presentation.

(t) Assets held for sale and discontinued operations

When the Group intends to dispose of, or classify as held for sale, a business component that represents a separate major line of business or geographical area of operations it classifies such operations as discontinued. The post tax profit or loss of the discontinued operations is shown as a single amount on the face of the income statement, separate from the other results of the Group.

An allocation of interest relating to the debt demerged with the Americas Beverages business has been included within Discontinued Operations in 2008.

Assets classified as held for sale are measured at the lower of carrying value and fair value less costs to sell.

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when management are committed to the sale, the sale is highly probable and expected to be completed within one year from classification and the asset is available for immediate sale in its present condition.

Disposal groups are classified as discontinued operations where they represent a major line of business or geographical area of operations. The income statement for the comparative periods will be represented to show the discontinued operations separate from the continuing operations.

(u) Taxation

The tax charge for the year includes the charge for tax currently payable and deferred taxation. The current tax charge represents the estimated amount due that arises from the operations of the Group in the financial year and after making adjustments to estimates in respect of prior years.

Deferred tax is recognised in respect of all differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, except where the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised where the carrying value of an asset is greater than its associated tax basis or where the carrying value of a liability is less than its associated tax basis. Deferred tax is provided for any differences that exist between the tax base and accounting base of brand intangibles arising from a business combination.

A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the deductible temporary difference or tax loss can be utilised.

 

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Financial statements continued

 

1. Nature of operations and accounting policies (continued)

 

(u) Taxation (continued)

The Group is able to control the timing of dividends from its subsidiaries and hence does not expect to remit overseas earnings in the foreseeable future in a way that would result in a charge to taxable profit. Hence deferred tax is recognised in respect of the retained earnings of overseas subsidiaries only to the extent that, at the balance sheet date, dividends have been accrued as receivable or a binding agreement to distribute past earnings in future has been entered into by the subsidiary. Deferred tax is recognised for unremitted overseas earnings on its associates and interests in joint ventures.

Deferred tax is measured at the tax rates that are expected to apply in the periods in which the temporary differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted, by the balance sheet date. Deferred tax is measured on a non-discounted basis.

(v) Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

(w) Pensions and other post-retirement benefits

The cost of defined contribution retirement schemes is charged as an expense as the costs become payable. Any difference between the payments and the charge is recognised as a short-term asset or liability. Payments to state-managed retirement benefit schemes where the Group’s obligations are equivalent to those arising in a defined contribution retirement benefit scheme are treated in the same manner.

For defined benefit retirement schemes, the cost of providing the benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Past service cost is recognised immediately to the extent the benefits are vested, and otherwise are amortised straight line over the average period until the benefits become vested. The current service cost and the recognised element of any past service cost are presented within Profit from Operations. The expected return on plan assets less the interest arising on the pension liabilities is presented within finance costs as a non-underlying item due to its volatility as a result of its dependence on external market factors at one point in time. Actuarial gains and losses are recognised in full in the period in which they occur, outside of profit and loss and presented in the Statement of Recognised Income and Expense. The expected return on plan assets reflects the estimate made by management of the long-term yields that will arise from the specific assets held within the pension plan.

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost and the fair value of any relevant scheme assets. Where a deep market for corporate bonds exists, the discount rate applied in arriving at the present value represents yields on high quality corporate bonds in a similar economic environment with lives similar to the maturity of the pension liabilities. In the absence of a deep market for such corporate bonds a government bond yield is used. Any net assets resulting from this calculation are limited to the extent of any past service cost, plus the present value of guaranteed refunds (even if available only at the end of the plan) and reductions in future contributions to the plan.

(x) Financial instruments

Recognition

Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes party to the contractual provisions of the instrument on a trade date basis.

 

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Financial statements continued

 

1. Nature of operations and accounting policies (continued)

 

Derivative financial instruments

The Group manages exposures using hedging instruments that provide the appropriate economic outcome. Where it is permissible under IAS 39, the Group’s policy is to apply hedge accounting to hedging relationships where it is both practical to do so and its application reduces volatility.

Transactions that may be effective hedges in economic terms may not always qualify for hedge accounting under IAS 39. Due to the nature of many of the Group’s hedging and derivative instruments it is unlikely that hedge accounting will be adopted for these hedging relationships. Consequently, movements in the fair value of derivative instruments will be immediately recognised in the income statement and may lead to increased volatility. The Group will separately disclose the impact of such volatility.

1. Nature of operations and accounting policies

(x) Financial instruments (continued)

The Group is exposed to a number of different market risks arising from its international business. Derivative financial instruments are utilised by the Group to reduce risk, to alter interest rate exposures arising from mismatches between assets and liabilities or to achieve greater certainty of future costs. These exposures fall into two main categories:

Transactional exposures

The Group is exposed to changes in prices of its raw materials, certain of which are subject to potential short and long-term fluctuations. In respect of such commodities the Group enters into derivative contracts 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. In principle these derivatives may qualify as “cash flow hedges” of future forecast transactions. To the extent that the hedge is deemed effective, the movement in the fair value of the derivative would be deferred in equity and released to the income statement as the cash flows relating to the underlying transactions are incurred.

The Group has transactional currency exposures arising from its international trade. The Group also enters into certain contracts for the physical delivery of raw materials which may implicitly contain a transactional currency exposure, an “embedded derivative”. The Group’s policy is to take forward cover for all forecasted receipts and payments (including inter-company transactions) for as far in advance as the pricing structures are committed. The Group makes use of the forward foreign exchange markets to hedge its exposures. In principle these derivatives may qualify as “cash flow hedges” of future forecast transactions. To the extent that the hedge is deemed effective, the movement in the fair value of the derivative would be deferred in equity and released to the income statement as the cash flows relating to the underlying transactions are incurred.

Treasury hedging

Interest rate swaps, cross currency interest rate swaps and forward rate agreements are used to convert fixed rate borrowings to floating rate borrowings. In principle, these derivatives would qualify as “fair value hedges” of the underlying borrowings. To the extent that the hedge is deemed effective, the carrying value of the borrowings would be adjusted for changes in their fair value attributable to changes in interest rates through the income statement. There would also be an adjustment to the income statement for the movement in fair value of the hedging instrument that would offset, to the extent that the hedge is effective, the movement in the carrying value of the underlying borrowings.

Interest rate swaps and forward rate agreements are used to convert a proportion of floating rate borrowings to fixed rate. In principle, these transactions would qualify as “cash flow hedges” of floating rate borrowings. To the extent that the hedge is deemed effective, the movement in the fair value of the derivative would be deferred in equity and released to the income statement as the cash flows relating to the underlying borrowing are incurred. However, where these transactions hedge another derivative (e.g. fixed to floating rate interest rate swap), they would not qualify for hedge accounting under IAS 39 because the risk being hedged is a risk created by the use of derivatives.

 

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Financial statements continued

 

1. Nature of operations and accounting policies (continued)

 

Where it is neither practical nor permissible to apply hedge accounting to the Group’s derivative instruments, the movements in the fair value of these derivative instruments are immediately recognised in the income statement within financing.

Trade receivables

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated, irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Borrowings

Borrowings are initially recognised at fair value plus any transaction costs associated with the issue of the relevant financial liability. Subsequent to initial measurement, borrowings are measured at amortised cost with the borrowing costs being accounted for on an accrual basis in the income statement using the effective interest rate method. At the balance sheet date accrued interest is recorded separately from the associated borrowings within current liabilities.

The fair value adjustments for all borrowings designated as hedged items in a fair value hedge are disclosed separately as a net figure. The fair value adjustment is calculated using a discounted cash flow technique based on observable market inputs.

Short-Term Investments

Short-term investments held by the Group are in the form of bank deposits and money market fund deposits. Investments are recognised and derecognised on a trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and initially measured at fair value, plus transaction costs. Following initial recognition, investments are accounted for at amortised cost. Please Refer to note 1(s).

(y) Management performance measures

Cadbury believes that underlying profit from operations, underlying profit before tax, underlying earnings and underlying earnings per share provide additional useful information on underlying trends to shareholders. These measures are used by Cadbury management for internal performance analysis and incentive compensation arrangements for employees. The term underlying is not a defined term under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. It is not intended to be a substitute for, or superior to, GAAP measurements of profit. As the Group has chosen to present an alternative earnings per share measure, a reconciliation of this alternative measure to the statutory measure required by IFRS is given in Note 13.

To meet the needs of shareholders and other external users of the financial statements, the presentation of the income statement shows clearly through the use of columns, our underlying business performance which provides more useful information on underlying trends.

 

Cadbury Report & Accounts 2009

54


Financial statements continued

1. Nature of operations and accounting policies (continued)

 

The principal adjustments made to reported profit and classified as non-underlying in the income statement are summarised below:

 

> Restructuring costs – the costs incurred by the Group in implementing significant restructuring projects, such as Vision into Action, the major Group-wide efficiency programme in pursuit of the mid-teen margin goal and integrating acquired businesses are classified as restructuring. These are programmes involving one-off incremental items of major expenditure. In addition, costs incurred to establish a stand-alone confectionery business after the divestment of the beverages businesses have also been classified as restructuring. The Group views restructuring costs as costs associated with investment in the future performance of the business and not part of the underlying performance trends of the business. Where material, restructuring costs are initially recognised after discounting to present value. The subsequent unwind of any discount is reported as a non-underlying finance cost if the associated provision resulted from non-underlying restructuring costs;

 

> Amortisation and impairment of intangibles – the Group amortises certain short-life acquisition intangibles. This amortisation charge is not considered to be reflective of the underlying trading of the Group;

 

> Non-trading items – while the gain or loss on the disposal or impairment of subsidiaries, associates, investments and fixed assets form part of the Group’s operating activities, the Group does not consider them to form part of its trading activities. The gains and losses (including transaction costs incurred such as external adviser costs incurred in relation to the take over approach by Kraft Foods Inc) on these discrete items can be significant and can have a material impact on the absolute amount of, and trend in, the Group profit from operations and operating margins. Any gains and losses on these non-trading items are therefore excluded in arriving at its underlying profit from operations;

 

> IAS 19 Income Statement result for pension financing costs - underlying earnings includes the service costs but excludes the financing result element of IAS 19 which is volatile due to its dependence on external market factors at one point in time. The net charge or credit from the expected return on plan assets and interest arising on pension liabilities can have material impact on the absolute amount of and trend in the result for the year therefore this item is analysed outside underlying. This has resulted in the re-presentation of the IAS 19 pension financing credit in non-underlying as set out in note 1 (a) for the year ended 31 December 2009.

 

> IAS 39 adjustments – under IAS 39, the Group seeks to apply 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 its hedging arrangements, in a number of circumstances, the Group is unable to obtain hedge accounting. The Group continues, however, to enter into these arrangements as they provide certainty of price and delivery for the commodities purchased by the Group, the exchange rates applying to the foreign currency transactions entered into by the Group and the interest rate applying to the Group’s debt. These arrangements result in fixed and determined cash flows. The Group believes that these arrangements remain effective, economic and commercial hedges. The effect of not applying hedge accounting under IAS 39 means that the reported profit from operations reflects the actual rate of exchange and commodity price ruling on the date of a transaction regardless of the cash flow paid by the Group at the predetermined rate of exchange and 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. While the impacts described above could be highly volatile depending on movements in exchange rates, interest yields or commodity prices, this volatility will not be reflected in the cash flows of the Group, which will be determined by the fixed or hedged rate. The volatility introduced as a result of not applying 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;

 

> Exceptional items – certain other items which do not reflect the Group’s underlying trading performance and due to their significance and one-off nature have been classified as exceptional. The gains and losses on these discrete items can have material impact on the absolute amount of and trend in the profit from operations and result for the year. Therefore any gains and losses on such items are analysed outside underlying. In 2009 and 2008 there are no exceptional items in the continuing Group, the exceptional items within discontinued operations comprise:

 

   

Demerger costs – in 2008, the Group incurred significant transaction costs, including one-off financing fees, as a result of the separation of the Americas Beverages business which have been classified outside underlying earnings and

 

Cadbury Report & Accounts 2009

55


Financial statements continued

1. Nature of operations and accounting policies (continued)

 

(y) Management performance measures (continued)

 

   

Taxation – the tax impact of the above items are also excluded in arriving at underlying earnings. In addition, from time to time there may be tax items which as a consequence of their size and nature are excluded from underlying earnings including tax matters with authorities relating to UK and overseas matters, the tax impact of reorganisations undertaken in preparation for the separation of Americas Beverages and the recognition of deferred tax assets relating to the reassessment of capital losses and the tax basis of goodwill on the classification of Australia Beverages as an asset held for sale and significant one-off settlements or provision increases in the year.

(z) Critical accounting policies

A review of our critical accounting policies and the judgements and estimates made by management when applying our critical accounting policies is discussed on pages 13 to 16, under the headings ‘critical accounting policies’, part (a), Brand and other acquisition intangibles, to part (g), Income taxes.

2. Revenue

An analysis of the Group’s revenue is as follows:

 

     2009
£m
   2008
£m

Continuing operations

     

Sale of goods

   5,967    5,375

Rendering of services1

   8    9
   5,975    5,384

Investment revenue (see Note 9)

   36    52

Discontinued operations (see Note 32)

   102    1,389
   6,113    6,825

 

1

Rendering of services relates to research and development work performed and invoiced to third parties by the Group’s Science and Technology facilities.

3. Trading costs

(a) Trading costs analysis:

 

     2009
£m
   2008
£m

Cost of sales

   3,210    2,870

Distribution costs

   262    247

Marketing and selling costs

   629    584

Administrative expenses

   1,110    1,098

Amortisation of definite life acquisition intangibles

   4    4
   5,215    4,803

Cost of sales represents those costs directly related to preparation of finished goods (including ingredients, labour, utility costs and the depreciation costs that arise on manufacturing assets). Distribution costs include the cost of storing products and transporting them to customers. Marketing and selling costs is made up of the cost of brand support through direct advertising, promotional marketing and the costs of supporting the sales and marketing effort. Administrative expenses include the cost of information technology, research and development and other back office functions.

 

Cadbury Report & Accounts 2009

56


Financial statements continued

 

3. Trading costs (continued)

 

The Group views restructuring costs as costs associated with investment in the future performance of our 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. The Group considers the amortisation and impairment of acquisition intangibles to be administrative in nature.

(b) Gross profit analysis:

 

     2009
£m
    2008
£m
 

Revenue

   5,975      5,384   

Cost of sales

   (3,210   (2,870

Gross profit

   2,765      2,514   

4. Restructuring costs

During 2009, the Group incurred £164 million (2008: £200 million) of restructuring costs. Of this total charge £nil million (2008: £6 million) relates to discontinued operations as disclosed in Note 32(g) and £164 million (2008: £194 million) relates to continuing operations as disclosed below. The Group initiated a restructuring programme in 2007 “Vision into Action”, in pursuit of mid-teen margins. The third party supply contract with Gumlink became onerous in 2007 and net penalties payable have been recognised in 2008 and 2009. The costs incurred to effect the separation and creation of a stand-alone confectionery business following the demerger of the Americas Beverages business and the sale of Australia Beverages have been classified as restructuring in 2008 and 2009.

 

     2009
£m
   2008
£m

Vision into Action

   142    142

Integration costs

   15    9

Onerous contract and penalties payable – Gumlink

   2    27

Separation and creation of stand-alone confectionery business costs

   5    16
   164    194

Of this total charge of £164 million (2008: £194 million), £100 million (2008: £82 million) was redundancy related, £8 million (2008: £13 million) related to external consulting costs and £12 million (2008: £45 million) was associated with onerous contracts. £15 million (2008: £9 million) of integration costs primarily relates to the Group’s business in Turkey. The remaining costs consisted of asset write-offs, site closure costs, relocation costs, distribution contract termination payments. The analysis of these costs by segment is shown below:

 

     2009
£m
   Re-presented
2008

£m

Britain and Ireland

   42    14

Middle East and Africa

   4    7

Europe

   86    63

North America

   2    11

South America

   2    7

Pacific

   17    29

Asia

   —      3

Central

   11    60
   164    194

 

Cadbury Report & Accounts 2009

57


Financial statements continued

 

5. Non-trading items

 

     2009
£m
    2008
£m
 

Takeover related costs

   (88   —     

Net loss on disposal of subsidiaries and brands

   (1   (6

Profit on sale of investments

   3      3   

(Loss)/profit on disposal of land and buildings

   (3   4   
   (89   1   

The 2009 net loss from non-trading items principally relates to the external adviser costs incurred in relation to the takeover offer by Kraft Foods Inc which was declared unconditional on 2 February 2010.

The 2008 net loss on disposal of subsidiaries and brands in the year relates to a profit on the disposal of a non-core brand of £2 million, offset primarily by the finalisation of the loss on disposal of Monkhill, the non-core confectionery business.

The 2009 profit on sale of investments relates to the sale of a non core investment. In 2008 it related to the sale of Dr Pepper Snapple Group, Inc shares held by the Employee Share Ownership Trust following the demerger of the Americas Beverages business.

The loss on disposal of land and buildings (2008: profit) principally consists of the gain or loss arising from the sale of surplus property.

6. Profit from operations

Profit from operations for continuing operations is after charging:

 

     2009
£m
   2008
£m

Research and product development

   80    69

Depreciation of property, plant and equipment – owned assets

   186    151

 – under finance leases

   6    10

Amortisation of definite life acquisition intangibles

   4    4

Amortisation of software intangibles

   30    31

Maintenance and repairs

   81    78

Advertising and promotional marketing

   629    584

Impairment of trade receivables

   11    12

There were net foreign exchange losses of £8 million recognised within profit from operations in 2009 (2008: £nil).

Analysis of profit from operations for discontinued operations is given in Note 32(c).

Auditors’ remuneration

 

     2009
Continuing
£m
   2009
Discontinued
£m
   2009
Total
£m
   2008
Continuing
£m
   2008
Discontinued
£m
   2008
Total
£m

Audit services

                 

– for the audit of the Company’s annual accounts

   1.0    —      1.0    1.0    —      1.0

– for the audit of the Company’s subsidiaries

   3.7    0.2    3.9    3.7    0.2    3.9

Total audit fees

   4.7    0.2    4.9    4.7    0.2    4.9

Other services pursuant to legislation

   2.3    —      2.3    0.2    1.4    1.6

Tax services

   1.1    —      1.1    0.2    —      0.2

Corporate finance services

   0.6    —      0.6    —      0.4    0.4

Other services

   0.3    —      0.3    0.8    —      0.8

Total non-audit fees

   4.3    —      4.3    1.2    1.8    3.0

Auditors’ remuneration

   9.0    0.2    9.2    5.9    2.0    7.9

 

Cadbury Report & Accounts 2009

58


Financial statements continued

 

6. Profit from operations (continued)

 

In 2009, other services pursuant to legislation and the Corporate finance services fee primarily relates to services provided in relation to the takeover approach by Kraft Foods Inc and assurance regarding the half year review.

In 2008, other services pursuant to legislation primarily relates to shareholder/debt circular work related to the demerger of the Americas Beverages business and assurance regarding the half year review.

The nature of tax services comprises corporation tax advice and compliance services and amounts payable in relation to advice and compliance services on personal tax for expatriates.

7. Employees and emoluments

 

     2009 £m    2008 £m

Emoluments of employees, including Directors, comprised:

     

Wages and salaries

   865    893

Social security costs

   93    111

Post-retirement benefit costs (see Note 25)

   59    64

Share-based payments (see Note 26)

   29    35

Continuing operations

   1,046    1,103
     2009    Re-presented1
2008

Average employee headcount:

     

Britain and Ireland

   5,203    5,793

Middle East and Africa

   5,217    5,685

Europe

   9,933    9,603

North America

   8,006    8,681

South America

   5,246    5,487

Asia

   5,981    5,574

Pacific

   4,518    4,973

Central

   694    721

Continuing operations

   44,798    46,517

 

1

Employee numbers have been re-presented in accordance with the Group’s re-presentation of its business segments.

Emoluments of employees including Directors, of discontinued operations totalled £5 million (2008: £260 million), giving a total for the Group of £1,051 million (2008: £1,363 million). The average employee headcount of discontinued operations totalled 381(2008: 8,227). Further details of discontinued operations are given in Note 32(b).

The Company had no employees in the year.

 

Cadbury Report & Accounts 2009

59


Financial statements continued

 

8. Directors’ remuneration

The information required by the Companies Act 2006 and the Listing Rules of the Financial Services Authority is contained on pages 17 to 27 in the Directors’ Remuneration Report.

9. Investment revenue

 

     2009
£m
   2008
£m

Interest on loans and receivables

     

Interest on bank deposits

   33    25

Post retirement employee benefits

   —      27

Interest on unwind of discounts on receivables

   3    —  

Investment revenue

   36    52

10. Finance costs

 

     2009
£m
   2008
£m
 

Finance loss on held for trading assets and liabilities

     

Net loss/(gain) arising on derivatives (held for trading) not in a designated hedge relationship

   18    (94

Interest on other liabilities

     

Bank and other loans

   125    112   

Commercial paper

   5    29   

Other interest

     

Post retirement employee benefits

   8    —     

Interest on unwind of discounts on provisions

   2    3   

Interest on tax and other provisions1

   14    —     

Finance costs

   172    50   

 

1

Interest on tax and other provisions relates to a £4m underlying charge and a £10m non-underlying charge.

 

Cadbury Report & Accounts 2009

60


Financial statements continued

 

10. Finance costs (continued)

 

Total interest on financial instruments that are not recognised at fair value through the income statement was £152 million (2008: £134 million).

An analysis of finance costs for discontinued operations is given in Note 32(d).

11. Taxation

 

Analysis of charge in period

   2009
£m
    2008
£m
 

Current tax – continuing operations:

    

– UK

   (1   —     

– Overseas

   (85   (240

– Adjustment in respect of prior years

   1      (3
   (85   (243

Deferred tax – continuing operations:

    

– UK

   (4   (12

– Overseas

   (29   192   

– Adjustment in respect of prior years

   15      33   
   (18   213   

Taxation – continuing operations

   (103   (30

UK current tax is calculated at 28% (2008: 28.5%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

In addition to the amounts recorded in the income statement, a deferred tax credit relating to post-retirement benefits, share awards and other short-term temporary differences totalling £81 million (2008: £97 million) was recognised directly in equity. Deferred tax carried forward in the UK is calculated at 28% (2008: 28%).

The effective tax rate for the year can be reconciled to the UK corporation tax rate as follows:

 

     2009
%
    2008
%
 

Tax at the UK corporation rate

   28.0      28.5   

Tax effects of:

    

Expenses not deductible in determining taxable profit

   7.0      6.0   

Income not taxable

   (8.0   (6.3

Prior period adjustments

   (4.4   (7.5

Different tax rates of subsidiaries operating in different jurisdictions

   5.8      3.7   

Transactions undertaken in preparation of the demerger of the Americas Beverages business1

   —        (16.8

Other

   (0.6   0.6   

Share of results of associates

   (0.5   (0.7

Effective tax rate for the year

   27.3      7.5   

 

1

The net tax credit relates to certain re-organisations carried out in preparation for the demerger of the Americas Beverages business in 2008

For details of taxation and the effective tax rate for discontinued operations see Note 32(e).

12. Dividends

 

     2009
£m
   2008
£m

Amounts recognised as distributions to equity holders in the period:

     

Final dividend for the prior year of 11.1p (2008: 10.5p) per share

   148    222

Interim dividend for the year of 5.7p (2008: 5.3p) per share

   78    73
   226    295

 

Cadbury Report & Accounts 2009

61


Financial statements continued

 

12. Dividends (continued)

 

Subject to the Kraft Final offer being declared wholly unconditional, the Directors declared and paid a special dividend of 10 pence per ordinary share, payable to those shareholders on the Company’s share register on 2 February 2010, equivalent to a cash payment of approximately £140 million. This comprises of 1,372 million existing shares in issue and an additional 27 million shares to be issued in settlement of the Group’s employee share schemes. The Company will not incur any tax charge upon payment of the proposed dividend.

The final dividend payments made in 2008 relate to dividends paid on Cadbury Schweppes plc shares, whereas other dividend payments relate to Cadbury plc shares.

13. Earnings per share

(a) Basic EPS – Continuing and Discontinued

An explanation of the reconciling items between reported and underlying performance measures is included in Note 1 (y). The reconciliation between reported and underlying EPS, and between the earnings figures used in calculating them, is as follows:

 

     Earnings
2009

£m
    EPS
2009
pence
    Re-presented
Earnings
2008

£m
    Re-presented
EPS

2008
pence
 

Reported – continuing and discontinued

   509      37.4      364      22.6   

Restructuring costs1

   166      12.2      203      12.6   

Amortisation and impairment of acquisition intangibles

   4      0.3      12      0.7   

Non-trading items3

   98      7.2      (2   (0.1

Profit on disposal and demerger costs

   (323   (23.8   122      7.5   

IAS 19 Pension financing charge/(credit)

   8      0.6      (26   (1.6

IAS 39 adjustment

   63      4.6      (46   (2.8

Effect of tax on above items2

   (7   (0.5   (160   (9.9

Underlying – continuing and discontinued

   518      38.0      467      29.0   

 

1

Restructuring costs are made up of £164 million (2008: £194 million) for continuing operations, £nil (2008: £6 million) for discontinued operations and £2 million (2008: £3 million) relating to the unwind of discounts on provisions recognised within finance costs.

2

Effect of tax on above items in 2009 includes a £88 million charge relating to the disposal of Australia Beverages and a £10 million charge relating to certain reorganisations of European businesses. During 2009, the Group has progressed tax matters with authorities resulting in a net non-underlying tax credit of £40 million, consisting of a net £64 million credit relating to UK matters and a £24 million charge relating to overseas tax matters, which is also included in this amount. In 2008 it includes a £39 million credit relating to certain reorganisations carried out in preparation for the demerger of the Americas Beverages business and a £44 million credit relating to the recognition of deferred tax assets arising from the reassessment of capital losses and the tax basis of goodwill on the classification of Australia Beverages as an asset held for sale in that year.

3

Non-trading items are made up of a £89 million charge in profit from operations and a £7 million charge relating to non-underlying finance costs as per page 36 and £2 million relating to discontinued operations.

(b) Diluted EPS – Continuing and Discontinued

Diluted EPS has been calculated based on the reported and underlying earnings amounts above. The diluted reported and underlying EPS are set out below:

 

     2009
pence
   Re-presented
2008

pence

Diluted reported – continuing and discontinued

   37.3    22.6

Diluted underlying – continuing and discontinued

   37.9    28.9

A reconciliation between the shares used in calculating basic and diluted EPS is as follows:

 

     2009
million
   2008
million

Average shares used in Basic EPS calculation

   1,361    1,611

Dilutive share options outstanding

   3    3

Shares used in diluted EPS calculation

   1,364    1,614

Share options not included in the diluted EPS calculation because they were non-dilutive in the period totalled 1 million (2008: 3 million), as the exercise price of these share options was above the average share price for the relevant year.

 

Cadbury Report & Accounts 2009

62


Financial statements continued

13. Earnings per share (continued)

 

(c) Continuing Operations EPS

The reconciliation between reported continuing and underlying continuing EPS, and between the earnings figures used in calculating them, is as follows:

 

     Earnings
2009

£m
    EPS
2009
pence
    Re-presented
Earnings
2008

£m
    Re-presented
EPS

2008
pence
 

Reported – continuing operations

   274      20.1      368      22.8   

Restructuring costs1

   166      12.2      197      12.2   

Amortisation and impairment of acquisition intangibles

   4      0.3      4      0.2   

Non-trading items3

   96      7.1      (1   —     

IAS 39 adjustment

   62      4.5      (41   (2.5

IAS 19 Pension financing charge/(credit)

   8      0.6      (27   (1.7

Effect of tax on above items2

   (94   (6.9   (118   (7.3

Underlying – continuing operations

   516      37.9      382      23.7   

 

1

Restructuring costs are made up of £164 million (2008: £194 million) for continuing operations and £2 million (2008: £3 million) relating to the unwind of discounts on provisions recognised within financing costs.

2

Effect of tax on above items in 2009 includes a £10 million charge relating to certain reorganisations of European businesses. During 2009 the Group has progressed tax matters with authorities resulting in a net non-underlying tax credit of £40 million, consisting of a net £64 million credit relating to UK matters and a £24 million charge relating to overseas tax matters, which is also included in this amount. In 2008, it includes a £68 million credit relating to certain reorganisations carried out in preparation for the demerger of the Americas Beverages business.

3

Non-trading items are made up of a £89 million charge in profit from operations and a £7 million charge relating to non-underlying finance costs as per page 36.

Diluted continuing EPS has been calculated based on the reported continuing and underlying continuing earnings amounts above. A reconciliation between the shares used in calculating basic and diluted EPS is set out above. The diluted reported and underlying earnings per share from continuing operations are set out below:

 

     2009
pence
   Re-presented
2008

pence

Diluted reported – continuing operations

   20.1    22.8

Diluted underlying – continuing operations

   37.8    23.7

EPS information for discontinued operations is presented in Note 32(g).

14. Goodwill

(i) Group

 

     £m  

Cost

  

At 1 January 2008

   2,833   

Exchange differences

   381   

Recognised on acquisition of subsidiaries

   (8 )

Transferred to asset held for sale

   (19

Derecognised on demerger

   (871

At 31 December 2008

   2,316   

Exchange differences

   (112

At 31 December 2009

   2,204   

Impairment

  

At 1 January 2008

   (28

At 31 December 2008

   (28

At 31 December 2009

   (28

Net book value at 31 December 2008

   2,288   

Net book value at 31 December 2009

   2,176   

 

Cadbury Report & Accounts 2009

63


Financial statements continued

 

14. Goodwill (continued)

 

In 2008, the Group demerged its Americas Beverages business, and the goodwill relating to this business has therefore left the Group. The transfer of goodwill to asset held for sale in 2008 relates to the goodwill on the Australia Beverages business which was subsequently sold in 2009.

Goodwill recognised on acquisition in 2008 relates to final adjustments to the opening balance sheets of businesses acquired in 2007 and adjustments to consideration paid on these acquisitions.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the cash generating units (CGUs) to which goodwill has been allocated are determined based on value in use calculations which are the present value of the future cash flows expected to be obtained from the CGUs. The key assumptions for the value in use calculations for all CGUs are those regarding discount rates, long-term growth rates and expected changes to the cash flows generated by the CGU during the period. Initially a post-tax discount rate based on the Group’s weighted average cost of capital of 7.5%, adjusted where appropriate for country specific risks, is applied to calculate the net present value of the post-tax cash flows. If this indicates that the recoverable value of the unit is close to or below its carrying value, the impairment test is reperformed using a pre-tax discount rate and pre-tax cash flows in order to determine if an impairment exists and to establish its magnitude. Changes to the cash flows are determined for each CGU and are based on local management forecasts, past performance and the impact of Group strategies such as focus brands and markets.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next four years and extrapolates cash flows for no more than a further five years, using a steady growth rate applicable to the relevant market. During this five year period the growth rate for developed markets is forecast inflation and for emerging markets is the forecast GDP growth of the relevant countries. This rate does not exceed the average long-term growth rate for the relevant markets. The cash flows are assumed to continue in perpetuity at the long-term growth rate for the relevant countries, which are based on external industry forecasts of inflation.

Management believes that there are no reasonably possible changes to the key assumptions in the next year which would result in the carrying amount of goodwill exceeding the recoverable amount.

The carrying amounts of significant goodwill allocated for impairment testing purposes to each cash generating unit and the related assumptions used in assessing recoverable amount are as follows:

 

     Long term
growth rate
    Post-tax
discount

rate
    Pre-tax
discount rate
    2009
£m
   2008
£m

US and Canadian confectionery

   2.4   8.2   13.1   942    1,001

Northern Latin America confectionery

   3.2   11.4   16.1   259    273

Turkey

   4.1 %   12.8 %2    16.0   249    270

Other1

   0.6% – 8.0   7.1% – 19.7   8.3% – 28.1   726    744
         2,176    2,288

 

1

Other represents the other 15 continuing CGUs which are not individually significant to the Group.

2

The blended discount rate applied to Turkey reflects the risks of the domestic market (14.9%) and the other markets in which the CGU operates.

The US and Canadian confectionery and Northern Latin America confectionery goodwill arose principally from the Adams acquisition in 2003. The Turkey goodwill arose from the acquisitions of Intergum, Kent and Adams.

 

Cadbury Report & Accounts 2009

64


Financial statements continued

 

14. Goodwill (continued)

 

(ii) Company

The Company has no goodwill.

15. Other intangible assets

(i) Group

 

     Brand
intangibles
£m
    Franchise
intangibles and
customer
relationships
£m
    Total
acquisition
intangibles
£m
    Software
and  other
£m
 

Cost

        

At 1 January 2008

   3,048      398      3,446      264   

Exchange differences

   289      2      291      21   

Additions

   —        —        —        29   

Disposals

   —        —        —        (4

Finalisation of fair value of acquisitions

   —        (3   (3  

Demerger of Americas Beverages

   (1,713   (397   (2,110   (135

Transfers to assets held for sale

   —        —        —        (52

At 31 December 2008

   1,624      —        1,624      123   

Exchange differences