Strategy Review

2006 outlook

In 2006, we expect to continue our good progress in delivering sutainable profitable growth

2004 - 2007 Goals		2006 Priorities
Deliver superior shareowner performance		Deliver annual contract Extract Fuel for Growth and focus on Free Cash Flow
Profitably and significantly increase global confectionery share		Invest, innovate and execute Leverage Smart Variety
Profitably secure and grow regional beverages share		Invest, innovate and execute Strengthen non carbonated drinks and route to market
Ensure our capabilities are best in class		Embed core processes to improve business planning Focus on Supply Chain and transform IT
Nurture the trust of our colleagues and the communities in which we do business		Deepen talent pool and increase diversity and inclusiveness Continue high Corporate and Social Responsibility standards through our actions and our brands

In 2006, we expect to deliver results within our financial goal ranges for revenue, margin growth and free cash flow.

Given our focus on innovation and marketplace execution, we expect continued good sales momentum.

Commodity costs remain challenging, with oil prices staying high and sweetener and aluminium prices increasing sharply in recent months. We expect to more than offset these increases through a combination of pricing and cost reduction initiatives but margin progress will be weighted towards the second half.

Margins are expected to benefit from increased Fuel for Growth cost savings. We are now more than half way through the Fuel for Growth programme. With savings of over £180 million already made, our focus will be on extracting the balance of the projected total savings of £360 million over the next two years.

Free cash flow and capital efficiency will be a priority in 2006, with particular emphasis on continuing to improve our working capital performance. The flexibility provided by the sale of Europe Beverages and disposals of other non-core assets will enable us to further strengthen our confectionery and beverage platforms through strategic capital investments and bolt-on acquisitions.

Although the external environment is likely to remain challenging, we will continue to increase investment behind long-term growth, particularly around our innovation pipeline, and we will seek to leverage our wide product range, broad geographic reach, strong routes to market and manufacturing capabilities through Smart Variety. In beverages, we will seek to consolidate on the stronger performance in the second half of 2005 in our non-carbonated portfolio, and continue the momentum in our carbonated drinks business through innovation and through greater alignment with our bottling partners.

We will further strengthen our processes in our functions and regions in 2006, and will particularly focus on streamlining processes within our Supply Chain function, and on enhancing our IT capabilities. Together these will improve our business planning, enhance our forecasting, improve our speed to market with new products, and our working capital performance.

For 2006, we have refined our fifth goal, building on our existing strong reputation with our employees and society to focus on creating a cohesive and talented workforce, with the emphasis on encouraging inclusiveness and increasing the diversity of our people. We will continue to work to our high standards of corporate and social responsibility both in the way we conduct our business and in our products and the way we sell them.