Written evidence from Kraft
UPDATE ON PROGRESS MADE SINCE KRAFT FOODS
ACQUIRED CADBURY
INTRODUCTION
1. On 2 February 2010, Kraft Foods acquired control
of Cadbury plc through a tender process that received the unanimous
approval of the Cadbury Board of Directors. One year on, Kraft
Foods would like to take this opportunity to provide an update
on the progress it has made in integrating its businesses in the
UK and around the world and on the commitments it made to the
UK at the Business, Innovation and Skills Committee last year.
2. Outlined below are key points regarding our
progress over the past 12 months, showing that we have fully met
all, and in many instances exceeded, the commitments we made.
3. In summary, we said that we would not change
Cadbury's brand; that we would continue to make Cadbury Dairy
Milk and other products in the UK and continue to manage brands
from the UK; that we would honour Cadbury's previous commitments
to staff at the Somerdale factory; that we would make no further
compulsory redundancies of manufacturing employees in the UK for
at least two years; that we would honour Cadbury's pension arrangements;
and that we would maintain Cadbury's existing commitments to Fairtrade,
local community investment and sponsorship of London 2012.
4. We have honoured all of these commitments
as well as others that we made to the Committee. In addition,
we have increased investment in research and development in the
UK, grown sales in the Cadbury business and contributed to the
UK economy. Further detail of these developments, and others,
is below.
BUSINESS PERFORMANCE
5. While we are not able to disclose exact figures
ahead of the release of our full-year results on 10 February,
we can say that, through the third quarter, 2010 was a successful
year for Cadbury. The combined business performed well despite
a difficult economic climate. In the UK for example, Cadbury's
Easter sales were up 13% over 2009, and we have sold more than
300 million bars of Fairtrade Cadbury Dairy Milk since
certification in 2009.
6. In addition, while we are not able to discuss
specifics ahead of our results being released on 10 February,
based on results through the third quarter, we were pleased with
the company's overall performance in the UK and Europe. We believe
that this combined success reflects our taking the "best
of both" as well as the quality of integration and teamwork
and our investments in the business during these nine months.
We continue to plan for the future, including for new product
development and launches; developing our London 2012 sponsorship
activation; and continuing to invest in research and development.
CORPORATE STRUCTURE
AND INTEGRATION
7. Kraft Foods has operated in the UK and Ireland
for more than 85 years. Prior to our merger with Cadbury, Kraft
Foods employed around 1,500 people in the UK; that number has
now grown to nearly 7,000 people in the UK and Ireland, including
5,000 people in manufacturing across six sites in the UK and three
in Ireland. Our focus is on investing to grow and on developing
our people and our leading brands. We have created two global
centres for research and development in the UK: one for chocolate
in Bournville, which combines Cadbury's rich history in chocolate
development with Kraft's successful heritage chocolate brands,
and one for coffee in Banbury. We will also continue to operate
the Cadbury research facility, Reading Scientific Services, which
will serve the global Kraft Foods business. We believe this continued
investment in high quality R&D jobs is good news both for
the UK food manufacturing sector and for the economy as a whole.
In total we have created 50 new expert positions at Bournville,
as a result of our investment.
8. We continue to integrate the company into
our global operations to create the world's leading confectionery
company by building on the strengths of both Kraft Foods and Cadbury.
An important part of this integration is our European headquarters,
which have been in Switzerland since 2008 (as was Cadbury's European
operation for a number of years before the acquisition). Many
of our main brands, such as Toblerone, Milka and
Philadelphia, are sold across European markets, and so
our business is structured to support strategic decision-making
for Europe as a whole, with a pan-European management team in
Zurich. As we have always said we would, we have integrated our
two European operations to ensure their strength as part of the
global business. By way of indication, Kraft Foods' European business
is now bigger than Cadbury's global business at the time of the
merger.
9. There has been speculation in the media about
the impact of this structure on the tax paid by Kraft Foods and
Cadbury. Kraft Foods and Cadbury have always paid their taxes.
The reality is that we expect the actual tax paid by the businesses
in the UK before and after the acquisition to be roughly the same.
Moreover, as a major employer and with significant investments
in the UK, Kraft Foods makes a major contribution to the UK economy
and to the Exchequer, through corporate taxes, VAT on product
sales, employee payments and other streams, all of which generate
revenue for the UK Exchequer. We also work with and support a
large network of suppliers and customers that in turn bring additional
value to the UK economy. Overall, we believe we can best contribute
to the UK economy over the long term by being competitive and
successful so that we can secure jobs, drive economic growth and
help build confidence in the UK as a place to invest.
10. Our systematic approach to creating value
all the way through this process—from our suppliers and
producers, through the manufacturing process, to our marketing
and sales interaction with the consumer—helps to maximise
our growth and our contribution to the economy.
UK WORKFORCE
11. The integration of the Kraft Foods and Cadbury
businesses is proceeding according to plan. We have retained a
great deal (ie the majority) of the talent from the Cadbury workforce—approximately
one third of Kraft's top 400 executives today are originally from
the Cadbury team. The proportion of the UK management team from
Cadbury is even higher. Overall, we are proud of how well Kraft
Foods and Cadbury people have come together as a single team with
a shared sense of commitment and values.
12. We have been operating in a challenging economic
context over the past 12 months. The West Midlands has been particularly
hard hit by the economic situation, resulting in an unemployment
rate of 9.9% in the region by the end of 2010. The number of unemployed
people in the West Midlands rose by 48,000 in the three months
to November 2010. Our actions to develop Bournville into our global
centre of excellence for chocolate research and development, and
to serve as one of our two main UK offices, are set against this
trend. In addition, we are honouring our promise that there would
be no additional closures of manufacturing facilities in the United
Kingdom for a two-year period (running from 16 March 2010) and
that there would be no further compulsory redundancies amongst
manufacturing employees in the UK during the same period.
13. Kraft Foods recognises the vital role that
the food industry plays in the UK economy. Indeed, it is the UK's
largest manufacturing sector, and we are proud of our leading
role in the industry, both as an investor and as a major employer.
Our workforce is central to our success.
14. Kraft Foods devotes a good deal of attention
to developing our staff and to training young people through our
graduate recruitment and apprenticeship programmes. Kraft Foods
and Cadbury both operated graduate recruitment programmes, which
we expect to maintain at the same level in the combined company.
In 2010 we recruited apprentices at five of our sites in the UK,
and we are keen to ensure that these apprentices receive the best
possible on-the-job training.
BRAND MANAGEMENT
15. At Kraft Foods, we are proud of the heritage
and range of great brands we have within our portfolio. Our UK
chocolate brands include Cadbury Dairy Milk, Creme Eggs,
Flake, Green & Black's, Milka, Toblerone
and Wispa. Other leading Kraft Foods brands in the
UK include Kenco and Carte Noire coffee, Philadelphia
cream cheese, and Oreo, Ritz and Belvita
biscuits. Our brands are leaders in the UK market, enjoying
a strong consumer following. Brand stewardship has long been,
and remains, key to our success. This is reflected in our continuing
involvement, investment and commitment to the UK as a whole.
16. We fully recognise the strength of the Cadbury
brand and its well-loved products. We will not replace the iconic
Cadbury logo on our products. The UK continues to receive royalties
from the use of the Cadbury brand name overseas, and we remain
proud recipients of the Royal Warrant. In Bournville, the Cadbury
name and flags will remain prominent fixtures on the exterior
and interior of our offices, just as they have for decades, and
the Uxbridge headquarters will remain "Cadbury House".
Our visitor centre at Cadbury World is one of the most popular
tourist attractions in the Midlands.
17. We are committed to our Cadbury brands in
the UK, from manufacturing through to marketing and sales. The
great majority of the Cadbury product we sell in the UK and Ireland
is made in the UK and Ireland, and we have over 100 of our UK-focused
marketing team working in the UK (approximately 98%). The quality
and recipe of Cadbury chocolate are unchanged, and we continue
to support Cadbury's relationships with UK dairy farmers who supply
the famous "glass and a half" of milk.
CAPITAL INVESTMENT
AND RESEARCH
AND DEVELOPMENT
18. As we pledged to the Committee last year,
we have built on both Cadbury's and Kraft Foods' strong history
of innovation by strengthening our investment in UK research and
our global centres for development in Reading, Banbury and Bournville.
19. We are making a £15.8 million investment
in our coffee facility in Banbury for two new packing lines and
overall process improvement.
20. Last May we announced that Bournville, following
a $216 million (£135 million) investment programme over the
last five years, will be Kraft Foods' global centre of excellence
for chocolate research and development. The centre of excellence
will drive new product development, new technologies and best
practices for such beloved chocolate brands as Cadbury Dairy
Milk, Milka, Toblerone, Côte d'Or,
Terry's, Flake, Creme Egg, Green &
Black's, Suchard, Freia, Marabou and
Lacta. Bournville will drive innovation for the Kraft Foods
chocolate business all over the world.
21. We have met and exceeded our specific commitment
to maintain Cadbury's R&D sites in the UK. Cadbury's existing
science centre in Reading will become a global science and technology
centre serving Kraft Foods worldwide. Both the global centres
in Bournville and Reading are in addition to Kraft Foods' existing
global centre of excellence for coffee, which has been in Banbury
for more than forty years.
SOMERDALE
22. We have continued to support employees affected
by the closure of the Somerdale plant, as Cadbury had planned.
For example, we have used a comprehensive range of measures, including
appropriate redundancy packages and advice on seeking new employment
or exploring other options, to assist those who have lost their
jobs. All employees under notice have been offered one-to-one
meetings on pensions, personalised counselling with an independent
financial advisor, on-site job search support and access to money
for retraining. We have also organised a Jobcentre on site and
have provided significant re-training opportunities for staff.
23. A number of employees have had support from
Business Link to help them set up their own business; 200 have
registered with the outplacement agency and 60 have now found
other employment; around 50 are retiring or taking career breaks;
20 are relocating to other Kraft sites. The agency has contacted
over 600 local employers to source jobs, followed up leads in
newspapers and provided individual searches for employees to identify
suitable opportunities.
24. The factory has recently stopped production,
and we have been working closely with local authorities to come
up with a blueprint for the future use of the site. This will
provide both housing and employment opportunities. We will help
to preserve the positive contribution of the Somerdale site to
the Keynsham community after the factory's closure by rebuilding
the Fry Club at Somerdale.
CORPORATE RESPONSIBILITY
AND THE
ENVIRONMENT
Fairtrade and Rainforest Alliance
25. A key part of our ongoing commitment to strengthening
our business is to continue to build our relationship with the
Fairtrade Foundation. Our commitment is represented by certification
on Cadbury Dairy Milk which has grown to cover the UK,
Ireland, New Zealand, Australia and Canada. By the end of this
year we will also be able to include the entire Green &
Blacks range in Fairtrade certification. We also continue
to work closely with and support the Rainforest Alliance for other
chocolate brands in our portfolio, such as Cote d'Or, and
are looking for opportunities to synchronise our work across the
two partnerships and activities to maximise the effectiveness
of both programmes.
26. To reinforce our support for Fairtrade and
the Cadbury Cocoa Partnership, Nick Bunker, President of Kraft
Foods UK and Ireland, visited Ghana in Autumn 2010 with Harriet
Lamb of the Fairtrade Foundation and Malcolm Bruce MP, Chair of
the International Development Committee, to see at first hand
the importance of the work being done and the value of the our
continued support at the grassroots level. A further working field
trip in November, led by our European Corporate Affairs Director,
Sara Sizer, brought together at a community level the partnership
programmes supported by Kraft Foods including the Cadbury Cocoa
Partnership, Fairtrade Foundation, Rainforest Alliance and the
Gates Foundation / World Cocoa Foundation Cocoa Livelihoods Programme.
27. Kraft Foods globally is also the largest
buyer of coffee and cocoa beans from Rainforest Alliance Certified™
farms; in the UK, all the coffee beans we buy for the Kenco coffee
range are from Rainforest Alliance Certified™ farms. In 2010,
we bought about 50,000 metric tons of coffee for our global business
from Rainforest Alliance Certified™ farms, compared with
34,000 metric tons (more than 75 million pounds) in 2009 which
was, in turn, a 15% increase over 2008. Reinforcing our involvement
in this area, Nick Bunker is also chair of the UK Food and Drink
Federation's committee on Sustainability.
ENVIRONMENT
28. We continue to make progress in reducing
our CO2 emissions to achieve
our target of reducing emissions by 25% between 2005 and 2011.
This is consistent with Cadbury's longer term ambition to reduce
CO2 emissions by 50% by
2020. As from 2011 we will have a common baseline that will allow
us to pursue ambitious CO2 emission
reductions as a combined business and will soon announce our goals
beyond 2011. Kraft Foods has actively participated in the Carbon
Disclosure Project (CDP) since 2005 and was named in the 2010
Global CDP Leadership Index. The Carbon Disclosure Leadership
Index recognises companies that demonstrate good internal data
management practices for understanding greenhouse gas emissions,
including energy use. Companies that appear on this index have
also demonstrated clear consideration of how climate change impacts
their business.
HEALTH AND
WELL-BEING
29. At Kraft Foods, we help our consumers to make
informed decisions about what they eat by providing nutritional
labelling on all of our products in all markets—whether
this is required or not. In the UK all our products clearly display
nutritional guideline daily amounts. Our portfolio includes many
better choice products and we are constantly investigating how
further reformulation can be undertaken to reduce levels of fat,
salt and calories. We were part of the first group of companies
to introduce voluntary front-of-pack GDA nutrition labelling in
the UK, helping consumers to make informed choices, and since
2004 we have supported the health4schools programme, an award-winning
initiative promoting healthy diet, sustainability and active play
to over 100 schools in the Gloucestershire area. We have recently
announced that we will be making a similar investment over the
next three years in Birmingham.
LONDON 2012
30. Kraft Foods is delivering Cadbury's sponsorship
of London 2012 and is pleased with the progress over the last
year. In August 2010 we launched Spots v Stripes as part of Cadbury's
official partnership with the London 2012 Olympic and Paralympic
Games. This innovative outreach programme aims to engage people
across the country in the spirit of the Games and strengthen communities
by building a lasting legacy of play.
31. Since its launch, the Spots v Stripes programme
has encouraged over 12,500 people to play games at more than 200
Spots v Stripes community events across the UK and Ireland, while
over one million people have logged on to the official Spots v
Stripes website to see how they can get involved. 2011 will see
even greater support for Spots v Stripes, with further backing
from brands such as Cadbury Dairy Milk.
32. As part of our community programme we are
working with the charity Groundwork to put in place a national
network of Spots v Stripes Community Games Coordinators, with
a target to recruit 2,000 volunteers. We are also taking forward
plans to invest in community spaces in Birmingham, Sheffield,
Marlbrook, Chirk, Dublin, Uxbridge, Reading, Crediton, and Hackney
to create areas for people to play games. In addition managers
from Kraft Foods have worked with Paralympic teams to share strategic
and leadership support. Through these activities Spots v Stripes
will help to deliver a lasting legacy for the London 2012 Olympic
and Paralympic Games by building stronger communities through
play.
WORKING WITH
OUR COMMUNITIES
Cadbury Foundation
33. We have continued to fund the Cadbury Foundation,
which was first established in 1935 by Cadbury Brothers Limited.
At a very positive and constructive meeting with the Foundation
last March, we agreed to provide £750,000 a year as part
of a three-year programme.
COMMUNITY INVESTMENTS
34. Kraft Foods has no plans to change Cadbury's
community investment goal, through volunteering or direct funding
and we are on track to exceed this target. The percentage of Cadbury
employees in the UK & Ireland who volunteered in 2010 increased
to 34%, from 29% in 2009, and the value of community investment
rose to £1.9 million, from £1.4 million in 2009.
35. Every year, Kraft Foods employees take part
in a global community service event called Delicious Difference
Week. In 2010 almost 1,150 Kraft Foods employees in the UK took
part in some form of volunteering, offering over 5,500 hours of
their combined time and benefitting an estimated 6,425 people.
36. More recently, staff spent an additional
500 hours volunteering to help with the physical regeneration
of the community spaces near to its UK sites as part of Cadbury's
Spots v Stripes community programme, and such activities will
continue in 2011.
37. We have also announced plans to make a substantial
investment over the next three years to bring Kraft Foods' innovative
health4schools education programme to schools in Birmingham. We
have run this programme in schools in Gloucestershire since 2004,
working in conjunction with NHS Gloucestershire and Gloucestershire
County Council. It has helped more than 100 schools to deliver
educational activities relating to growing food, learning to cook,
eating breakfast and active play, providing funding for teacher
training, resources packs and extra facilitators. The programme
has been so successful in engaging schoolchildren on the issue
of healthy lifestyles that it has been recognised by organisations
such as Business in the Community.
38. We will be working with Birmingham City Council's
Health Education Service over the coming months to tailor the
health4schools programme to the needs of local schools, with the
aim of having the programme up and running by the start of the
2011 academic year in September.
IN CONCLUSION
39. In acquiring Cadbury, we knew that we were
acquiring not only an excellent company but one with a strong
emotional connection with millions of people. We are working hard
to prove our respect for Cadbury's heritage and values and to
show the many benefits of combining with Kraft Foods. Of course,
actions are what matter most, and we believe this brief report
demonstrates that we are doing what we said we would do. Kraft
Foods is proud of the skilled and committed team we have in the
UK and pleased that we can contribute to the country's economy
and to the everyday lives of the millions of people who enjoy
our products.
31 January 2011
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