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Cadbury Schweppes
Financial statements
and reporting
01_Introduction
Limited companies (those owned by shareholders) are required by law to
produce Financial Statements. These statements must be published
and made available to shareholders as part of a company report.
Cadbury Schweppes aims to produce clear financial statements that give
a valuable insight into the company’s strategy and performance.
Cadbury Schweppes is a major
international company that
manufactures, markets and sells
confectionery and non-alcoholic
beverages. With origins
stretching back over 200 years,
Cadbury Schweppes’ brands are
enjoyed today in almost every
nation in the world. They include
regional and local favourites such
as Cadbury Dairy Milk, Trident,
Halls, Dentyne, Bubblicious,
Bassett’s and Trebor in
confectionery and Dr Pepper,
Schweppes, Snapple and 7Up in
beverages. The company employs
around 50,000 people.
Cadbury Schweppes’ Head Office
accounts team collects the
information required to create
these statements from the
company’s accountants and
financial teams around the world.
The legal responsibility for
producing financial statements
that present an accurate picture
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of the company’s performance over the period lies
with the company’s directors. These statements
must be checked by an external audit, where the
company hires a firm of accountants to verify that it
provides a true and fair record and complies with
legal requirements. The exact statutory requirements
for limited companies to prepare and publish
accounts are laid down for limited companies
through the Companies Act 1985, regulated by
Companies House, and for publicly listed
companies through European law, the Listings Rules,
regulated by Financial Services Authority (FSA).
Some leading public companies, like
Cadbury Schweppes, include reports to
shareholders on their success in meeting self-set
financial goals within their financial statements.
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The three main Financial Statements are:
1. Profit and Loss Account
2. Balance Sheet
3. Cash Flow Statement.
02_Establishing financial goals
Businesses need to have a clear direction to work
towards, so that their employees know what they
are seeking to achieve and what they need to do.
The directors of a company (with the Finance
Director or Chief Financial Officer playing a
prominent role) establish financial goals which are
used by investors, financial analysts and other
external parties to monitor the performance of a
company.
Because these financial goals can be set out in
numbers, it is relatively easy to compare actual
performance against the set targets. For example,
by setting sales growth goals, it is possible to check
progress in meeting sales targets.
Cadbury Schweppes has established three
performance goal ranges for the period 2004-2007.
These are:
1. Net Sales Value (NSV) growth of between 3%
and 5%. NSV growth refers to the growth in sales
of the company - for example by selling more soft
drinks, chocolate or chewing gum to supermarkets,
which in turn sell to consumers.
2. Operating margin growth of between 50 and 75
basis points per year. Operating margin growth
refers to making more profit for each £1 of sales
made - for example by buying ingredients and
packaging materials as efficiently as possible.
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3. Free cash flow of £1.5 billion over the four-year
period. Free cash flow reflects how much cash is
generated within the business, for example by
increasing profits. Free cash flow is important to
enable the company to have the money available to
meet its financial commitments. 053
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Cadbury Schweppes

03_Cadbury Schweppes’ Profit The Profit and Loss Account

shows a summary of the
and Loss Account transactions of the business for
A Profit and Loss Account is a table compiled at the a period of one year.
end of an accounting period, to show gross and net
profit or loss. It is very useful for helping readers to 1. The top line shows that the
understand the financial performance of a company. sales revenue from products such
as Dr Pepper, Halls, Schweppes,
A review of the Profit and Loss Account will help Trident and Cadbury Dairy Milk,
shareholders and other users to see how the came to £6,738 million. This can
company is performing. be called either ‘revenue’ or ‘sales’
(historically called turnover).
The table below shows three key figures for 2004: 2. Costs were involved in making
these products – the cost of raw
Financial Explanation Value in materials such as cocoa,
indicator 2004 packaging, transport, staff
salaries, advertising, etc. The
Sales The total value £6,738m production costs added up to
of sales revenue £5,668 million. These are
made from deducted from revenue because
selling products
they are paid out. It is common
to show negative values in
Net Profit before Profit made. £916m brackets in financial statements.
tax and interest Calculated by
deducting costs 3. Cadbury Schweppes owns a
from revenue
share of some other companies
– raising additional income.
Earnings per The profit for the 25.9 pence
Share year divided by the 4. Cadbury Schweppes has
number of shares in borrowed money, for example, to
Cadbury Schweppes.
buy new companies. It must pay
interest payments on these loans.
A simplified version of Cadbury Schweppes’ Profit
and Loss Account for 2004 is set out below. When 5. Cadbury Schweppes must pay
Corporation Tax to the government
reading a Profit and Loss Account, it is easier to
(£185 million, which goes towards
understand a company’s financial performance by
helping to pay for items such as
comparing the latest figures with the previous years.
education and health spending).
To help you do this, the 2005 results will be
This is a tax on profits. Once tax
included in our online version, when they are
has been deducted the profit for
published in February.
the year is £547 million.

Profit and Loss Account Cadbury Schweppes 2004 6. The profit for the year is the
£ amount of profit after all external costs are
1. Sales revenue 6,738 deducted. The profit for the year is then used to
either pay a dividend to shareholders or is retained
2. Less cost of sales (5,668) by the company in its reserves, for future use.

Gross profit 1,070 7. Finally, a calculation is set out of Earnings per

Share – the profit divided by the number of shares
Less other expenses in the company. This is 25.9p. Investors will want to
see this figure rising over time, as it indicates the
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Other costs (154)

Net Profit before tax and interest
3. Plus non trading income
Net Profit with extra income
before tax and interest
4. Less net finance costs (interest)
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return on their investment into the company, and
916 they will measure percentage increases and
compare the growth rates of different companies.
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04_The Balance Sheet
To understand the financial position of Cadbury
937 Schweppes at a moment in time, it is necessary to
‘freeze’ the values of various financial components.
(205) These values, or balances, are used to set out the
Balance Sheet.
732

5. Less Taxation (185) A Balance Sheet shows the relationship between the
assets of the business (what the business owns or is
6. Profit for the year 547 owed), and the liabilities of the business (what the
business owes). When liabilities are taken away from
7. Earnings per Share 25.9p assets this gives a figure for net assets, which
provides an indication of the health of the business at
054 N.B. figures in brackets indicate a negative. a point in time.

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The following is a summarised Cadbury Schweppes
Balance Sheet for 2004. It sets out the overall
structure of the Balance Sheet, but simplifies some
of the individual balances:
Balance Sheet Cadbury Schweppes 31.12.04
1. Fixed assets 7,640
add
2. Current Assets 2,240
less
3. Current Liabilities 2,393
Net Current Assets/Liabilities
(working capital) (153)
Total Assets 7,487
4. Less long term liabilities (5,187)
5. Net Assets 2,300
6. Financed by
Shareholders Capital 2,300
Here is a simple explanation of the Balance Sheet:
1. Fixed assets consist of two main elements.
a. Intangible Assets are ones that help to generate
wealth for the business over time but don't have a
physical presence. For example, a major intangible
for Cadbury Schweppes is the 'goodwill' associated
with brands that it has acquired, such as Halls. The
fact that Halls is an existing high profile brand that
consumers recognise and connect with gives
Cadbury Schweppes a valuable asset that will
generate sales and profits over a long period.
Internally generated brands, like Cadbury Dairy Milk,
are not on the balance sheet as they have not been
purchased at a known cost.
b.Tangible assets are those that exist physically;
these include the costs of factories and machinery
used to make the products and the offices that the
staff work in around the world.
2. Current assets consist of stock (Inventories), trade
and other receivables (Debtors, i.e. amounts of
money customers owe for goods that they have not
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yet paid for), and cash. After production, supplies of
chocolate and sweets are stored for a short period of
time until a customer makes an order when they are
delivered to wholesalers and supermarket chains
such as Tesco. Stocks are counted as current assets
because they are quickly turned into cash. Tesco and
others typically buy from Cadbury Schweppes on
credit – the money owed is counted as a current
asset, and the company owing it is a debtor.
We then deduct the liabilities (see point 3) from the
assets.
3. Current liabilities consist of any payments that
Cadbury Schweppes must pay out in the short-term
(typically under a year) such as payments to
suppliers for cocoa and sugar. In addition, it would
include short-term borrowings and overdrafts.
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4. Non-current liabilities consist primarily of bank loans,
Cadbury Schweppes
money owed to employees to pay their pensions, etc.
5. The net assets/liabilities figure is then calculated
by deducting the two main types of liabilities from
the two main categories of assets.
6. The final section of the Balance Sheet shows the
amount of shareholders’ funds. This is the price paid
by the shareholders for their initial share capital and
the retained profits made by the company.
At the end of 2004 the net assets of
Cadbury Schweppes and thus the total equity
(shareholders’ capital) was £2,300m.
Visit The Times 100 website for updates, which will be
released as soon as the results for 2005 are available.
05_Ratio analysis
(Profitability analysis)
Financial statements can be analysed by
shareholders, the financial press, and others to
check how well a company is performing. Ratios are
determined from a company’s financial information
and used for comparison purposes, e.g. operating
profit to sales. This can be set out in the form:
Operating Profit: Revenue
Alternatively, it can be set out as a percentage.
Operating Profit margin = Operating Profit x 100
Revenue
This is very helpful because it shows how much
profit is made for each £1 of sales made. An
improvement in Operating Profit margin would see
this figure rising over time – showing that Cadbury
Schweppes’ customers are prepared to pay more
for their purchases and/or that the company has
made savings by improving the way it makes or
ships its products. The operating profit margin of
Cadbury Schweppes can be compared from year
to year e.g. comparing 2005, 2006 etc, with 2004.
Cadbury Schweppes’ profit margin can also be
compared with that of other companies.
If you refer back to the Profit and Loss Account,
you can see that the operating profit margin was:
916 x 100 = 13.6%
6,738
The figure above is crucial to Cadbury Schweppes
as it relates to the second performance goal.
Here is another ratio you will find in your current
course. This ratio shows whether the company
owes more money to its suppliers and bankers than
the assets it holds in the form of stocks, debtors
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and cash. If this number is less than 1, then the
company’s short-term or liquid assets are greater
then its short-term liabilities.
The current ratio = current assets
current liabilities
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Cadbury Schweppes
If you refer back to the Balance Sheet, you can see
that the current ratio for Cadbury Schweppes is:
2240 = 0.94
2393
This ratio is used in different ways for small and
large companies. Businessmen and women
considering whether to trade with a new small
company would prefer to see this figure at 1.5 or
above – as an indication that the company is
solvent and will be able to pay its debts. For large
established companies with good credit ratings, a
lower ratio indicates an efficient use of capital.
In addition to the Balance Sheet and Income
Statement, Cadbury Schweppes values the
information provided in its Cash Flow Statement. This
statement simply sets out the incomings and outgoings
of cash in a business during a particular period of time
e.g. one year. It shows how the main categories of cash
flow have changed the cash balance in particular
periods. In 2004, Cadbury Schweppes achieved free
cash flow generation of £265 million. Cash flow is very
important to the company because cash enables the
business to pay its bills, pay dividends to its
shareholders and, in addition, to make acquisitions.
In recent times Cadbury Schweppes has focused on
acquiring new businesses, increasing sales and
innovation, cutting costs, and integrating existing
businesses to achieve its aims of:
• higher sales growth
• improved operating profit margins
The Times Newspaper Limited and ©MBA Publishing Ltd 2006. Whilst every effort has been made to ensure accuracy
• higher levels of free cash flow.
of information, neither the publisher nor the client can be held responsible for errors of omission or commission.
Assets: what a business owns or is owed by others,
e.g. Cadbury Schweppes owns factory buildings, it is
owed for goods sold on credit.
Balance Sheet: a snapshot of a firm’s assets, liabilities
and sources of capital at a moment in time.
Basis points: a basis point is one hundredth of a
percentage point (0.01%). They are often used to
GLOSSARY OF TERMS
measure changes in performance.
Cash Flow Statement: a financial statement
showing incomings, outgoings and cash balances.
The cash flow statement refers to flows that took
place in a previous period of time e.g. the last year.
Do not confuse this with a cash flow forecast which is
a future forecast of incomings and outgoings of cash
into a business.
Companies Act 1985: Series of laws enacted by
Parliament stipulating the legal requirements with which
public and private limited companies have to comply.
Companies House: The place where records of
every UK company are kept. These accounts are then
made available to the general public.
Current assets: stock (inventories), debtors and
cash – all of which will bring cash into the business in
the short period.
Current liabilities: payments that a business must pay
in the short-term.
Current ratio: the arithmetic ratio of current assets to
liabilities.
Directors: officials elected by shareholders to look
after their interests.
Earnings per Share: the profit made divided by the
number of shares in a company.
External audit: an examination of a company’s
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records and reports by a firm of registered auditors.
Financial goals: goals that a business is aiming for
which are set out in money quantities and which can be
gleaned from the financial statements.
For more information about Cadbury Schweppes please browse:
www.cadburyschweppes.com
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Through efficient financial
management Cadbury
Schweppes is able to continually
invest in making sure that
customers are supplied with the
brands that they enjoy.
06_Conclusion
Cadbury Schweppes prepares
financial statements because:
• As a listed company, it is
legally required to do so.
• Cadbury Schweppes wants to
communicate a true and fair
picture of the financial state of
the company to its shareowners
and external analysts. The
company values transparency
and honesty and aims to reflect
this is all its communications,
both internally and externally.
• Cadbury Schweppes won the
Communication of Corporate
Strategy Award at the
PricewaterhouseCoopers
‘Building Public Trust’ awards in
2005. This publicly recognised the
high standards of the company’s
reporting: ‘a highly accessible
overview of its short-term
strategy, major markets and
measurable targets.’
Financial Statement: a table setting out particular
financial aspects of the business e.g. cash flows,
balances relating to assets and liabilities etc.
Financial Services Authority
(FSA): an individual body that regulates the financial
services industry in the UK. It has a wide range of rule
making, investigatory and enforcement powers.
Income Statement: a statement setting out sources of
income for a business e.g. sales revenue, interest earned
etc as well as deductions for costs, interest paid etc. The
term income statement has replaced profit and loss
account under IFRS.
International Financial Reporting Standards
(IFRS): new international standards for setting out
financial statements.
Liabilities: what a business owes.
Net assets: the total of all assets after deducting all
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liabilities.
Operating Profit: the profit resulting from the activities
of a business. For example, for Cadbury Schweppes this
would largely consist of profit earned from producing
confectionery and soft drinks.
Profit and Loss Account: account setting out how a
business generates revenue, and the costs of making
these sales. Now referred to as an income statement
(see above).
Sales revenue: the value of all sales made, i.e. price
x number of items sold.
Shareholders: the part owners of a business.
Shareholders’ capital: the total value of the net
assets owned by shareholders of a business.
Turnover: the value of sales made by a business.
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