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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 234-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE BUSINESS, INNOVATION AND SKILLS COMMITTEE
Company Takeovers, Mergers and Acquisitions
MR JACK DROMEY and MS JENNIE FORMBY MR MARC FIRESTONE, MR TREVOR BOND and MR RICHARD DOYLE Evidence heard in Public Questions 119 - 348
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Business, Innovation and Skills Committee on Members present Peter Luff, in the Chair Roger Berry Mr Brian Binley Mr Michael Clapham Mr Lindsay Hoyle Miss Julie Kirkbride Lembit Öpik Ian Stewart ________________ Witnesses: Mr Jack Dromey, Deputy General Secretary, and Ms Jennie Formby, National Officer, Food and Drinks Sector, Unite, gave evidence. Q119 Chair: Mr Dromey and Ms Formby, welcome back to this Committee for a second time during this inquiry into mergers, acquisitions and takeovers, particularly now in the context, as we spoke last time, of the Kraft takeover of Cadbury. It is a bit otiose but can I ask you to introduce yourselves for the record? Mr Dromey: I am Jack Dromey, Deputy General Secretary of Unite. Ms Formby: I am Jennie Formby, I am National Secretary for Unite's Food, Drink and Tobacco sector. Chair: On behalf of several Members
of the Committee can I say there are Members of the Committee, of course, who
are members of Unite, the Ian Stewart: Proudly. Q120 Chair: I was going to ask you the opening question but actually I think you want to make an opening statement. My question is, really, the question that enables you to make that statement. What are your main concerns? Mr Dromey: Can I, first of all, thank you personally, and this all-party Committee, for carrying out this inquiry. The Cadbury workers are deeply grateful. Cadbury was born out of great philanthropic traditions; sons and daughters have followed granddads and grandmums into Cadbury. These are people who have over generations built a world-class company, and their view is that they have now suffered a double outrage: first, that they should be taken over - a successful British company - by a debt-laden American multinational and, second, 42 days on from the takeover, no one has yet to sit down with them and tell them what the future holds for them. They see the Kraft executives from afar in the factories but the Kraft executives have not spoken to them. Where is Irene? To be frank, Chair, Kraft cheesy smiles on YouTube are not enough; what Kraft owes to the workforce is sitting down with them and giving them guarantees for the future. There are two things in particular we want to focus on today: first, precisely that. If it was wrong in the long-term interests of the company and wrong in the national interest that Cadbury was taken over by Kraft we want to hear today that Kraft will give guarantees for the future of no site closures, no compulsory redundancies and that pensions and terms and conditions of employment will be protected for at least an initial five-year period. Second, Chair, in the words of John Flavin, the senior union representative at the Bournville factory, where Cadbury was born, we want to see a Cadbury's Law so that never again can a successful British company be taken over in this way - a hostile bid by a multinational. Therefore, we are proposing a mergers and takeovers commission which will act in the best long-term interests of the company as well as workers being properly consulted, under law, properly protected, under law, and able to negotiate protections with the incoming company, under law, so that we do not have the farce that we have had thus far of Kraft hiding behind and Cadbury hiding behind the takeover code. If everyone else can protect their interests - banks and pension funds - why not the workers? Thank you, Chair. Chair: Thank you. I did say to you when you came in that we are trying to keep this opening session down to about half-an-hour to get Kraft on as quickly as possible. I think you understand that. In that spirit, can I invite Mick Clapham to ask his question? Q121 Mr Clapham: Jennie, I remember when we met on the 19th you did express some scepticism about the actual Kraft approach. One of the things that has really caused a great deal of concern is the Somerdale factory. Cadbury having made the decision they were going to close Somerdale, along come Kraft which gives you the impression that they are going to keep it open. Do you feel that they misled you? Ms Formby: Can I echo what my colleague, Jack Dromey, has just said in thanking the Committee for the opportunity to come and speak to you again. In particular, because it is has given me the opportunity, for the first time, to meet anyone from Kraft, in the form of Mr Firestone, and that has been very welcome, to have that opportunity, since they have taken over Cadbury. Q122 Mr Hoyle: They have been that available? Ms Formby: That is how available they have been. Mr Hoyle: Marvellous. Q123 Chair: I was interested in what Mr Dromey said on this. He said he has seen Kraft executives from "afar" - that was the word he used, I think. Which Kraft executives are you aware of, at a senior level, having visited major plants? Ms Formby: Mr Firestone has very recently, but only very recently, visited the Somerdale plant to talk to the shop stewards, but several weeks too late as far as we are concerned and certainly as far as our members are concerned there. Other than that, Kraft executives have been seen walking around the Bournville site. Q124 Chair: What level of executive? Ms Formby: I am not too sure who the executives have been, to be honest, because they had Cadbury management minders with them and were not in direct contact with the workforce. Mr Dromey: When I was there last Friday, the representatives locally were told by Cadbury's management that these are senior guys from Kraft, and the representatives at Bournville said: "Can we speak to the senior representatives from Kraft?" and they were told no. Q125 Chair:
Just
to be clear (I am sorry, Mick, I interrupted), Ms Rosenfeld has visited no Ms Formby: Not to my knowledge. Mr Dromey: Unless she has come at the dead of night when there are no workers there, no. Ms Formby: I am sorry, I did not answer your question, I was getting there but I have not answered the question. I think, in response to that, absolutely, it is not just the workforce who has been misled; it is the whole of the British public and, of course, the Government who has been misled about Somerdale. I do not want to pretend that the closure of Somerdale is a shock; of course that was planned for some considerable period of time, and Mr Bond, who is here today, was one of the key architects of that decision, so I have no doubt you will be asking him about that. It is not actually revisiting the initial decision that is of importance in this; it is the fact that Kraft very cynically not just gave the impression but said they had every intention of keeping the site open. Right from the very first day that they announced their intention to bid, way back at the beginning of September when this statement was first made, I got in contact with Kraft, with Mr Richard Johnson who was the European Corporate Affairs Director, to say: "Look, I can't see how you can possibly keep the site open, so please don't make promises, please don't raise the hopes of people who have been, really, going through hell for the last two-and-a-half years knowing that they are going to lose their jobs and their community is going to suffer and everything else, unless you really can genuinely tell us how you intend to keep the site open." That was the theme that I visited several times after that, both in letters and in the one opportunity I had to meet people from Kraft during the bidding process, when we met Mr Johnson and their Mergers and Acquisitions Director, Tom Dillon, and their European HR Director. At that time, again, I said: "What is your intention for Somerdale? You know that the employees are going between March and June", and so on, and that things are pretty much finished in Poland, and of course all of the information about the progression of the government investment in Poland in the factory that is there and the construction work is the subject of regular updates that you can access on the internet, so they would have had the ability to get this information out. "So how are you proposing to keep the site open because we assume you are not going to just reverse the decision of Cadbury?" They were not willing to make any commitments whatsoever, so we continued to say: "Please don't make the statement unless you actually intend to keep it open." We never believed that they had an intention to do that, but the statement was repeated over and again in their media statements that they made, by their UK Managing Director, by Irene Rosenfeld on several occasions, and, indeed, to Lord Mandelson as well. I think you get the picture. Mr Dromey: Just to add very quickly: a proud workforce in a proud community had their hopes raised and their hopes then dashed. It was utterly cynical to pretend that they were going to reprieve the factory if they did not mean it. We, as a union, would never mislead workers in that way; Kraft should never have done that. Chair: Can I just encourage my colleagues and our witnesses, we have got another 20 minutes, so short questions and answers. Q126 Mr Clapham: What we can see is that it seems to have been a ploy at a time of the bidding to actually encourage, shall we say, a particular response from the workforce. Ms Formby: Absolutely. Sadly (and I say sadly because I think it has
had a devastating impact on the individuals), significant numbers of people
believed it. I have to say, if you look
back at Kraft's history, it is not the first time they have done this. They did this when they took over Freia
Marabou in Q127 Mr Clapham: In terms of the industrial relations atmosphere now in the plants, has it really soured industrial relations to the extent that Kraft is no longer trusted? Ms Formby: It is very difficult to talk about industrial relations as far as Kraft is concerned because, of course, the main industrial relations are conducted through people who are existing Cadbury management. There has always been a reasonably good relationship with the existing Cadbury management, and of course we have Richard Doyle here today who is one of the key figures who we liaise with, but if you are asking me what is the workforce's view of Kraft, they are very cynical and they are very, very concerned, particularly when already they are seeing in Kraft in Banbury that the company has only recently announced that they want to slash terms and conditions for new employees. That is being seen across the whole of the existing and new Kraft workforce as the company already looking at cutting terms and conditions as they have already cut jobs in head office functions to start paying off the debt - something we were very concerned about. Q128 Mr Clapham: Do you find it odd that it does not appear that they have made any intention of meeting with the union? Does that suggest that they may be about to introduce a totally new culture? I say that because if one looks at situations where we have seen the Americans come at the helm of an industry, such as for example, British Coal and MacGregor, we saw a totally different culture introduced. Is that your feeling; that they may well introduce a totally different industrial relations culture? Mr Dromey: I have been involved for 25 years in takeovers, sometimes disposals, acquisitions, privatisations and there is an iron law: those who are committed to making it work meet you quickly; those who have got a game plan that they do not want to tell you about take their time. What is so good about the Committee calling Kraft to account today is to ask Kraft for straight answers to straight questions: will you close plants? Will there be compulsory redundancies? Will terms and conditions be safe? Crucially, will you invest to make a success of that iconic British brand which is Cadbury's? Q129 Mr Hoyle: Very quickly, would it be right and fair to say that this is a management of Kraft that is remote, aloof, smug but, worst of all, duplicitous? Ms Formby: I think you have summed that up perfectly, Lindsay; certainly in terms of the way in which we perceive them at the moment, because we have the lack of any kind of personal relationship with Kraft, it is very difficult to say anything other than that, that is certainly the perception that our members have of that. I hope you are wrong. Q130 Mr Hoyle: I hope to be proved wrong. Ms Formby: I guess time will tell and we will find out after today whether there is going to be anything that is any different from that. Q131 Roger Berry: I have a number of constituents who have given a lifetime to Somerdale. Can I ask a very specific question about what redundancy pledges have Cadbury made to the workforce, and has Kraft confirmed or not that they are going to confirm those pledges? Ms Formby: There has not been any question that those pledges are going to be changed and the company has confirmed that they will continue to pay the redundancy packages that are part of the agreement. Q132 Roger Berry: Apart from redundancy commitments, have any other pledges been made in relation to the workforce? Ms Formby: There is a whole raft of measures that are what you would expect in these circumstances, in terms of looking at alternative jobs and so on, and helping people in the job market. Q133 Roger Berry: Kraft has confirmed it will stand by all the previous pledges made by Cadbury's? Ms Formby: We have had that confirmed by senior Cadbury management who are now Kraft management. Roger Berry: Thanks. That is all I want at this stage, Chairman. Q134 Mr Binley: A very quick one: Professor David Bailey has made it clear that Kraft's reason for changing their mind, which was that they did not know, is totally untenable in a bid of this kind. Mr Dromey: Absolutely. Q135 Mr Binley: That suggests that Ms Rosenfeld was either totally dishonest or totally incompetent. Which do you think? Mr Dromey: Can I put it in a slightly different way? No company like Kraft buys a company like Cadbury's without having a very clear idea what they intend to do. There is no question but that what Kraft did was completely to misrepresent the situation over Somerdale because they knew they would have a tough time taking over Cadbury and they wanted to send a message which was: "Don't worry, all will be well with us. The first thing we will do is to reprieve the Somerdale factory". It was utterly cynical - utterly cynical - to pretend that they were going to do that which they had no intention of doing. Within seven days, Brian - seven days - of 2 February the announcement was made; they broke their word to the workers of Somerdale. Outrageous. Q136 Ian Stewart: As you are aware, we are going to question Kraft management later, so we just want to get some of your views about how things have gone in relations between the union and Kraft and Cadbury up to date, and I have got a couple of questions about that. Then I want to move back, Jack, to what you were already indicating about the serious questions that union members want answering for the future, if you do not mind. Can you, first of all, tell me: did the lifting of confidentiality restrictions under the takeover code make any difference to the openness of your discussions with Kraft? Ms Formby: As far as the discussions that we had with Kraft and, indeed, with Cadbury during the takeover process, effectively there was nothing that was disclosed to us at the times that we had conversations which was not in the public domain already. Both companies said that they were unable to talk to us about anything that could potentially be price sensitive (and just about everything was price sensitive) because they were forbidden to by the takeover code and, therefore, there was virtually nothing that was disclosed to us which was not already well-known and in the public domain. Mr Dromey: That is not the case. That is not the case in other takeovers. We can give you two examples: one was Jaguar
Land Rover where the prospective buyers - and there were a number - the union
was able to meet with each one of them and talk to each one of them about their
intentions for the future and guarantees for the future. Another example is Ms Formby: Absolutely. Can I just add to that? I was with a company just last week, Unilever, who are in the process of taking over part of Sara Lee, and they have told us that it is not because the trade unions want consultation that they are engaging in consultation, it is because they believe it adds value to the takeover if they have full engagement with the workforce from both companies. They insist on doing that because they believe it is good business practice as well as, of course, very positive industrial relations. Ian Stewart: Jack, your proposal earlier that there should be a mergers and ---- Chair: I think we will leave that line. We have got your memo and we can absorb the contents. Thank you for that. It is something we will reflect on, I promise you. Can we concentrate on Cadbury/Kraft today. Q137 Ian Stewart: The proposal you were saying earlier, though, would that cover issues like this, if there was a mergers --- Mr Dromey: Yes, it would. Incidentally, I share the Chair's view, which is that the immediate priority is the guarantees for the future. 6.000 Cadbury workers are waiting to hear what Kraft executives will say to this Committee shortly. All I would say is for the future we must never again allow, in our economy, successful British companies to suffer the fate that Cadbury's suffered; a predatory bid by a multinational company, not in the best long-term interests of either the company or the country. Never again. Q138 Ian Stewart: I am going to ask you a couple of questions now about terms and conditions and your concerns for the future. It does not matter that you may have to repeat yourself; that is useful to us to help it sink in so we can ask the questions later. Jennie, you passed comment about the union's view about commitments already given about jobs and job losses for the future. At this point, have you had any indication of any numbers in relation to future jobs or job losses? Ms Formby: Not at all. Really, the only commitment, if you would like to call it that, are the assurances that Irene Rosenfeld gave via the media that they would be a net importer of jobs to the UK. However, the company has so far not been prepared to give us any of the guarantees that we asked for throughout the takeover process, which was that there would be no compulsory redundancies, there would be no site closures, that terms and conditions would not be eroded, and so on. Effectively, summing that up, we were saying: "Look, we want guarantees from you that the workers will not pay the cost of the takeover". Although we do not think it is a good idea for the takeover to happen for any number of reasons if, ultimately, one business decides to take over another, it should not be at the expense of the workforce. That is what we are very concerned about and why we are continuing to seek that. Q139 Chair:
That
manufacturing job guarantee was given in part on the back of transferring jobs
from Ms Formby: No, there was no indication given as to what was going to happen to Ireland because when we tried to have the conversation and say: "What is your view about how you are going to do all these various things?" the answer that was given back to us in the one meeting we had with Kraft was: "We don't know enough about the company to be able to give you any information." Mr Dromey: They knew enough about the company to buy it, but they cannot give any guarantees for the future. Ian, to be frank, warm words and cheesy smiles are not enough; it is those cast-iron guarantees. Forgive me if I stress it again: what the workers want to hear is that factories will not close; that there will not be compulsory redundancies; that their pensions are safe; that their terms and conditions of employment are safe, and crucially will Kraft invest to make a success? We do not want to go on seeing Irene on YouTube; what we want is for her to sit down with the workers and give those guarantees. Chair: We have got that message loud and clear. Q140 Ian Stewart: I did not even need to ask you to repeat it Jack, you anticipated it. Just one last question on this stuff. How have Kraft responded to the union's demand for an above-inflation pay rise for 6,000 Cadbury staff? Have they responded? Mr Dromey: No. Ms Formby: Can I say, to be fair on that, the first point is that there was a media report about what the pay claim was likely to be, which was not founded on anything other than speculation. A pay claim has been submitted but that is something that is not the subject ---- Q141 Ian Stewart: It is up for negotiation? Ms Formby: It is up for negotiation. We have not had any discussion on that. Mr Dromey: Of course, workers want to defend their living standards but, to be frank, right now their priority is they want factories and jobs. That is their priority. Q142 Mr Binley: Has Kraft informed you about whether or not it intends to adhere to Cadbury's commitment to the community, including continuing to contribute to the 1% pre-tax profit for community investment and encouraging at least a quarter of the employees to volunteer in the community? Cadbury has always been a very, very community-based company with a very high ethical code. That is what worries me as a businessman about all of this. Have they made any commitment in that respect? Ms Formby: There has certainly been no commitment that has been formally given to us as a trade union. I am sure that that has been discussed at local level, in particular, at Keynsham. The last time I asked anybody from Cadbury what their position was going to be in terms of leaving some kind of community legacy, which certainly Cadbury had been discussing during the period of talks about the closure of Somerdale, the answer was: "Well, we are not quite sure what we are going to do as far as that is concerned". However, we have not had any particular commitment as far as the specifics that you are talking about there. Again, of course, that is something that we are very concerned to make sure is long-lasting and ongoing. Q143 Mr Binley: Kraft seems to want us to believe that they are a most incompetent company who did not do their research properly. Surely, they would have researched this element of the Cadbury heritage, would they not? Ms Formby: I would have thought that is a question that I will be interested to hear you put to the management when their witnesses come to the table. Mr Dromey: We are keen to preserve and
build upon those great philanthropic traditions. You are right, Brian, there is a simple
truth: how you treat workers is crucial to the quality of the product they
produce or the service that they provide.
One of the great things about Cadbury and the reason why you have these
remarkable, long-service employees, for generation after generation, is there
was a distinct ethos that brought people to Bournville and to the other
factories. We do not want to lose that
in 21st century Q144 Mr Binley: I understand that totally. Can I just ask: does the foundation itself, do you know, have any inkling of how they might continue to support it or not? Ms Formby: I cannot answer that at all, at the moment, no. Q145 Mr Binley: No inkling at all? These questions are important for the Cadbury people. Mr Dromey: They are very important because I have been closely associated with the foundation on many projects over many years (all-party initiatives, by the way) and it is an excellent foundation that has done excellent work for 100 years. Mr Binley: Thank you very much. Chair: Do any of my colleagues want to ask any other points before we wind up? Q146 Miss Kirkbride: You said a number of times this morning that it is quite wrong that this bid should go ahead, and that it certainly should not be allowed in the future. You will be very well aware that the £11 million that the Unite union gives to the Labour Party has been much in the news just recently. I wonder if you can tell us what your members get for it. Mr Dromey: Forgive me saying this, Julie, but I think that certain issues should be above politics. Q147 Miss Kirkbride: Some should, but it is £11 million. Mr Dromey: I am here on behalf of Cadbury workers of all persuasions in all parts of the country. I welcome this all-party Committee acting on behalf of Parliament to call Kraft to account. I just think that to get involved in party political squabbling on a day like this - forgive me if I say this - is simply not appropriate. Simply not appropriate. Q148 Miss Kirkbride: You have been sitting there telling us that this bid should not be allowed to go ahead, and that it should not definitely ever be allowed to go ahead in the future, which has quite significant implications for the way the stock market might work, so I think it is perfectly relevant to say that, as you give the Labour Party a very significant sum of money, your members might like to know, after 13 years, what they have got for it, or what they might get in the future. Mr Dromey: Can I make just two quick points? First of all, on behalf of the union, we want the Government to go further than it has gone thus far. Let me make that absolutely crystal clear. I thought that Peter Mandelson's speech the Monday before last was a welcome step in the right direction that directors should be custodians not auctioneers of companies, the notion of two-thirds mechanisms for shareholders, and only those who are long-term shareholders able to vote, I thought it was a welcome step in the right direction. I do not believe that, in itself, it would have stopped Cadbury's being taken over by Kraft, and so therefore, Julie, unashamedly, we are arguing for that new mergers and takeover commission which can act in the long-term interests of a company and in the national interest. The other point is this: what Cadbury workers all over the country want is, right now, Parliament to be on their side, calling Kraft to account. I think, therefore, that what is important is that we have a unity of approach across Parliament; all parties working together. I do not want to divide anyone along political lines on something as important as the future of Cadbury's and Cadbury workers. Chair: It is one minute past eleven; I said we would do half-an-hour. Q149 Mr Hoyle: I think you have touched on a lot about mergers in the future maybe. This Committee, would you agree, ought to look at that as a possibility? Mr Dromey: Yes. Mr Hoyle: Also, do you think we ought to extend it around TUPE on mergers? Chair: I do not want to go into bigger policy issues, I am sorry, in view of the time. It is a very important question Lindsay has asked. The Committee does intend to produce a report after this evidence session pointing a way forward, so these are longer-term issues, which I think are hugely important. Q150 Mr
Binley: I have already said that I believe in ethical
business, and have done all my business life, so I share your deep concern in
terms of this takeover bid. The final straw
came when Franklin Templeton, a large Mr Dromey: No I do not. What I do know is that taxpayers' money was used through the Royal Bank of Scotland, on the one hand, and we had this grotesque sight of the hedge funds - these boys in red braces from Mayfair - on the other hand, buying up a quarter of the shares so that Cadbury could be taken over by Kraft. I think what happened, Brian, to be frank, it stunk. That is why we have said repeatedly today that here and now our big priority is the Cadbury's workers; those good men and women who deserve a secure future. However, lessons have got to be learnt from this. That is why we have tabled with you today what I hope, Chair, you will find a helpful memorandum with proposals that also address the issue of consultation and the protecting of terms and conditions of employment. Why is it that everyone else was able to act to protect their interests in this process but the workers were helpless spectators? It was absolutely wrong, and it should never happen again. What the Cadbury's workers have said that they would like part of their legacy to be "Never Again". Q151 Chair: What impressed me about the evidence you have given today is you are highlighting occasions where good practice has been followed in takeover bids, to the success of both parties. Thank you for commenting on Jaguar Land Rover, in particular, in that regard. Mr Dromey: Yes. Q152 Chair: Thank you. I think that is the half-hour, and we are very grateful to you. Mr Dromey: Thank you, once again, Chair. It is deeply appreciated. Witnesses: Mr Marc
Firestone, Executive Vice-President,
Kraft Foods Inc, Mr Trevor Bond, President, Cadbury Q153 Chair:
Gentlemen,
thank you for coming for this session, which is an important session for the
Committee and for Cadbury's employees, as you know. Unusually, I am going to start by making an
opening statement. I understand Mr
Firestone needs to make one for his own reasons as well. I want to say this: we have asked you to come
before us to provide some much needed clarity on Kraft's takeover of
Cadbury. You heard what the union has said
about the lack of clarity just now. I
hope that for all of us, including Members of my Committee, this is not an
opportunity to "grandstand"; the matters before us are far too serious for
that, because they affect a very large number of British workers. This is an opportunity for you to set the
record straight, which I hope you will seize, and to reassure your new
workforce in public, and the general public itself, the Government and
ourselves, that one of the Mr Doyle: Yes, of course. Thank you very much. My name is Richard Doyle; I am the Cadbury Britain & Ireland Human Resources Director. I also have responsibility for our 2012 Olympic programme and I am also a trustee of the Cadbury Foundation, which was mentioned earlier, and a trustee of the Cadbury Pension Fund. Q154 Chair: In future your role will be? Mr Doyle: We are in a process at the moment whereby I will have clarity, along with many of our colleagues, in the next month or so. Mr Bond: My name is Trevor Bond; I
have been in Cadbury for 23 years now. I
started in Bournville many, many years ago, and I have done a variety of roles
around the world, mainly in the Q155 Chair:
I am
correct in saying that you were the public voice of Cadbury on Mr Bond: Yes, Richard and myself, and my leadership team, were the ones who shaped the proposal and then announced that as well. Q156 Chair: You took the decision and announced it, personally. Mr Bond: Yes. Q157 Chair: Thank you very much. Mr Doyle: It is probably worth mentioning, I have been in the business in 21 years and certainly Trevor even longer. Mr Bond: That is why he looks so much younger than I do! Mr Firestone: Good morning, Chairman, my name is Marc Firestone and I am Executive Vice-President with Kraft Foods. I report directly to Ms Rosenfeld. I was part of a team that worked with her and the Board of Directors on the Cadbury transaction, and I am also responsible going forward for many of the areas, including the Foundation and contributions, in which the Committee and Unite and others are interested. If I may say very quickly, Sir, we do want to be able to answer all the questions that you have and, just as a technical matter, I want to say that under SEC rules if we make forward-looking statements ---- Q158 Ian Stewart: What is SEC? Mr Firestone: I am sorry, Sir; the US Securities Exchange Commission. In order to answer fully, if we give forward-looking statements or non-GAAP financial measures there will be reconciliations or limitations on our website. It is a technical point. The key point is I appreciate very much the privilege of being here today to answer all of your questions. Q159 Chair: Thank you. Can I just ask you: are you primarily a lawyer or a public relations man? Mr Firestone: Sir, I am responsible for a group that includes law, compliance, corporate affairs, community involvement as well as the corporate secretary, so my executive responsibilities span those areas, and I spend a lot of my time with the Board and Ms Rosenfeld. Q160 Chair:
We
are pleased that a senior manager of Kraft has come to this evidence session
but we are disappointed, I think, that we have not got someone, perhaps, who
had a more direct hand in the actual decisions in the past and going forward in
the future. Ms Rosenfeld has chosen not
to come, Michael Osanloo is quoted a lot in the press and he is not here, and
Nick Bunker, who was VP and MD of Kraft in the Mr Firestone: Yes, Sir, I was directly involved in the preparation and planning phase of this acquisition. I was directly involved in either drafting or reviewing many of the documents to which Ms Formby and others have referred, and on an ongoing basis I have direct oversight for community involvement and charitable contributions as well as the statements that you read earlier about inspiring trust, and so on. Those are areas for which I am responsible. Trevor, Richard and I, on a day-to-day basis, are the ones who look after much of what the Committee is interested in, which is, clearly, what is the future of Cadbury? Will it be the great company it has been in the past under Kraft's stewardship? Ms Rosenfeld asked the three of us to be here so that we could talk with you as directly as we can about the day-to-day details. Q161 Chair:
Who,
for Kraft, will take the decisions in the future about the structure of the new
business in the Mr Bond: We will have, as we have in
Cadbury, a board of management. That board
of management will be for the combined Chair: We will judge your suitability as a witness by the answers you give us, but we do have severe reservations that we have actually got someone who is responsible more for the image of the company and the legal compliance of the company than actually serious management decisions about its future. We will find out whether that concern is justified or not as we ask our questions. Q162 Ian
Stewart: Mr Firestone, you made reference to that Mr Firestone: Yes, Sir, absolutely, and I made reference ---- Q163 Ian Stewart: The second question is: what you missed out in answer to the question about who made the decisions in the past is you did not say that you were involved in the direct decision-making. Were you involved in making those decisions or were you only involved in all the things that you stated to this Committee? Mr Firestone: I was involved in making decisions as part of the team and under the direction, ultimately, of our Board of Directors related to this transaction. So, yes, Sir, I was. Q164 Lembit Öpik: Can I therefore assume, Mr Firestone, that we can take your position as the official corporate position in terms of the answers you give? You would not later on want to say those were comments made in a personal capacity? You are authorised to speak for the company today? Mr Firestone: Yes, Sir. I want to emphatically emphasise that I am here at the request of our Chairman in order to address the serious concerns that Unite has expressed, that this Committee and the members of the public have expressed. So, yes, Sir, absolutely. Q165 Mr Binley: Just for the record, could you tell us why Ms Rosenfeld did not come? Mr Firestone: As I said, Mr Binley, Ms Rosenfeld thought that the three of us are best placed because the questions, having heard the prior testimony especially, are far-ranging and they relate to a lot of details on which we are directly responsible on a day-to-day basis, and she has the deepest respect for this body and wanted to be sure that a panel before you was able to answer your questions. Mr Binley: Let me ask a supplementary, because she could have come and you could have been here as well. That is normal for people in this situation. Why did that not happen? I, quite frankly, consider it a sizeable discourtesy and I bet many members of the workforce of Cadbury do as well. Q166 Chair: Just a rider on Brian's question. The President of Toyota went before the US Congress. So although we have no powers to summons Ms Rosenfeld we would greatly have preferred that she was here. Mr Firestone: Yes, Sir, I understand that, and I sincerely hope that the three of us, as Mr Luff said, will prove our worthiness as witnesses in answering your questions. By point of reference, Ms Rosenfeld is actually in our Board of Directors meeting today, but the key point, as you said, on whether we are the right witnesses is whether we are able to answer your questions. Q167 Chair: Just to point out, we organised the session around your convenience not ours, to accommodate your wishes. Mr Firestone: Yes. Q168 Mr Hoyle: On that point, I am sorry that you have been sent as an apologist for Ms Rosenfeld. The worry is that I think it is total disregard for this House of Commons that she has not come today. The fact is she should be here supporting you and being upfront and, maybe, at the same time, just happen to have visited a Cadbury's plant. Do you not think that would have been important today? Mr Firestone: Mr Hoyle, Ms Rosenfeld ---- Q169 Mr Hoyle: Do you think it would have been important to visit Cadbury's and meet the workers, meet the unions, meet this House? Mr Firestone: I think it is very important
that Ms Rosenfeld, I and all of the people from Kraft get to know well all of
our new colleagues from Cadbury. We are
doing that, we will continue to do that and I can assure you, Sir, she has deep
respect for the Q170 Mr Hoyle: Why are you the apologist here today then? Mr Firestone: I am here, Sir, to answer your questions. There was a series of questions that are very important ones and I want to be able to answer those and I will answer them. Chair: I think we have made the point. Q171 Mr Hoyle: I think you have got our message. Mr Firestone: I have, Sir, yes. Q172 Chair:
The
substantive question I would just like to ask is: which senior members from the
American side of Kraft have visited which Cadbury facilities in the Mr Firestone: A number of us have been visiting. Although there has been a huge amount of discussion about the Kraft/Cadbury acquisition it is only six weeks ago that we actually took control. It is hard to believe but it is only since February 2nd that we actually took 50%, and in that time we have been doing as much as we can. I have been having the opportunity to visit facilities; I had the privilege of seeing Bournville and other facilities, and look forward to doing so with many of my other colleagues, many of whom have visited. Q173 Chair:
Ms
Rosenfeld has not yet visited a single Mr Firestone: I do not believe she has been to one yet, no, Sir. Mr Binley: Here we are with three experts. We are delighted that we have experts. Our concern, however, is that the information you gathered on Cadbury beforehand seems to be very vague and not very professional. The reason given was that you could not possibly know about Somerdale. Why now should we accept your expertise when you ask us to believe that you had not done your homework before? Q174 Chair:
I
think I will let that question hang in the air and let the answers you give
persuade us, because we need to make some progress. Brian makes an important point. The structure of questioning is some
questions about your overall approach to the Cadbury brand in the Mr Bond: We have been in the Q175 Chair:
Will
those brands continue to be managed from the Mr Bond: As I have mentioned before,
Nick Bunker will head up our Q176 Chair:
One
of the strengths of the Mr Firestone: Yes, Sir. Cadbury has a remarkable history of success in brand management, brand development. I would like to reaffirm what my colleague, Trevor, said, it is absolutely our plan to preserve the identity of the brands themselves as well as the identity of the company itself. We have heard questions about Bournville and the flags and the signs and so on. It is absolutely our intention that Cadbury will remain the name on the building; that Cadbury will remain the name on the flag. We were interested in this company because it is a remarkable company with a tremendous heritage and a great future, and so I can assure you that we will learn a lot at Kraft from Cadbury. In response to your question, Sir, yes, we will certainly look for many opportunities to learn from them in terms of brand management and brand development for other Kraft products. Q177 Chair:
Can I
ask a specific question about one product, perhaps the iconic Cadbury product,
which has a constituency relevance to me.
Will Cadbury's Dairy Milk continue to be produced in the Mr Bond: Yes. Q178 Chair: It will. For how long? Mr Bond: For as long as our consumers are delighted by the taste and the product that we produce. Q179 Mr Binley: Forgive me, Chairman, that simply is not good enough for the workforce. I recognise that business has its ups and downs - by golly, we have just been through them - but what is the intention of the company with regard to the manufacturing of this particular brand? Mr Bond: We have been producing Cadbury Dairy Milk in Bournville for well over 100 years. It is certainly my firm intent to continue to produce it in the years to come. As I have mentioned, I am a life-long Cadbury employee and my role in our new Kraft organisation is to make sure that Kraft get the full value from their acquisition but to bring the brands and the people in Cadbury into the Kraft organisation. Q180 Mr Binley: Is it Kraft's intention to continue producing, rather than your good self? Mr Bond: I am now Kraft. I work for Kraft, as do all colleagues in the
Q181 Chair:
You
have already transferred a good deal of production overseas, to Mr Bond: We obviously need to make
sure that our factories and facilities in the Q182 Chair:
Are
there any other Cadbury products currently made in the Mr Bond: Not at this moment in time. Chair: How soon might that change? "Not at this moment in time" is not very long. Q183 Mr Binley: It is not very reassuring, quite frankly. Mr Bond: Obviously, we need to
maintain competitiveness, as I have said before. We have been producing many, many
products. To your point, Cadbury is a
global business. We do produce, to your
point, products in Q184 Lembit Öpik: I used to work in Proctor & Gamble and these sorts of big decisions were always based on very objective criteria, which were known within the company and were not really confidential. What are the criteria which you would consider in deciding whether you maintain production in this country or whether you would move it abroad? Mr Bond: They are the economics of the decision, the quality of the product, the customer service - our ability to get product to our customers - and the taste profile of the products that we produce. Mr Firestone: As well as, I would just add, consumer preference. Clearly, Kraft's interest in this company is because of its success and we want to preserve that success. That is, along with the other criteria that Trevor mentioned, very important. Mr Doyle: We obviously take the human aspect of any decisions, as we have in the past. As Trevor said, he and I were very clearly responsible for the original decision around Somerdale back in 2007 and clearly the criteria Trevor has described, the human aspect, was a crucial part of that decision, and we did not take that decision lightly. Q185 Lembit Öpik: Would it be possible for you to define "human aspect"? What do you mean by that exactly? Is it that you are concerned about what could happen to the staff and that, in itself, per se, is a criterion? Mr Doyle: Yes, the communities in which those facilities operate, et cetera. Those are all aspects that we take very, very seriously. Q186 Chair: We will put those questions to the test, in the context of Somerdale, in a minute. We come to what is possibly the easiest question of the session (at least, I hope it will be the easiest). Cadbury's are currently sponsors of the 2012 Olympics. Will that continue to be the case and will it be under the Cadbury brand or the Kraft brand? Mr Doyle: Yes. As I mentioned in my introduction, I am
responsible for that area. The agreement
with LOCOG (the London Organising Committee), for which we are a Tier Two
sponsor, is for the Cadbury brand and that will absolutely continue. We have certainly been delighted by Kraft's
response to our plans for the next two-and-a-half years and I think they are as
excited as I and we all are within Cadbury in the Mr Firestone: On behalf of Kraft, Sir, I can reaffirm that we are absolutely standing behind that commitment. Q187 Chair: As Cadbury? Mr Firestone: As Cadbury, yes. Q188 Mr
Hoyle: Mr Bond, you have made quite a big case about
the history of Cadbury's, longevity of the brand - it is based in Bournville. Do you not believe the same was said to
Terry's of Mr Bond: I am. Q189 Mr
Hoyle: It used to say "Terry's of Mr Bond: Certainly, in a takeover bid,
and the takeover that we had was a hostile bid, certain things were said in the
heat of the battle. The shareholders
ultimately decided the future of the company, and that is obviously why we are
here in front of you today. In terms of
comparing Terry's to Cadbury, Terry's was a chocolate business in the Q190 Mr
Hoyle: I have to say that is not quite good enough,
is it, because the difference is that they went through this, we have seen how
Kraft deal with people. They are
ambiguous in all their statements. What
worries me today is - we talk about longevity of the brand - you cannot give us
longevity of the future of any plant in the Mr Firestone: I would agree with that, Sir. Perhaps I can add that we acquired the Terry's business in 1993 and the factory remained for 12 years. We did certainly do our best to maintain its competitiveness. In response to the earlier question about the criteria, I read with interest this Going for Growth report that talks about global supply chains and the reality of that in the business world, and with the case of Terry's it was just rational to move it out. However, I totally understand your point, Mr Hoyle, about the concerns that whether the economics dictate it or not there is the individual impact. When the Chairman says, in the third part, regarding the future, I will do my best to give you concrete (I believe the phrase "cast-iron guarantees" was used earlier) about the future of the various issues you mentioned. Q191 Mr
Hoyle: You can assure me that Terry's of Mr Firestone: I am not sure I understand the question. Mr Hoyle: You are committed to
Cadbury's being at Bournville and not in Q192 Chair: Lindsay, I think you have made your point. Mr Firestone: Would you like to move to the future now, Sir? Q193 Chair: Just answer that specific question about the future of the Bournville plant, in general terms, in answer to Mr Hoyle's question. Mr Firestone: Bournville remains at the heart of the Cadbury business and we intend to maintain it, we intend to invest in it and we intend to ensure that it remains competitive. Mr Hoyle: For Mr Firestone's benefit, I
may not have quite put it right to him.
Is your plan one year or three years in production in the Chair: We will ask these questions in more detail later. I will ask Mr Hoyle's questions to stay on the table and Julie Kirkbride will pursue that later on with you. Q194 Miss
Kirkbride: Just briefly on the business of Terry's, you
said there that there was a rationale to move Terry's of Mr Firestone: It was, as Trevor said, a
very different situation from what we have now as an opportunity with
Cadbury. Kraft in Q195 Mr
Hoyle: Chairman, can I come in on that? Correct me if I am wrong, but in 1993 you
paid £220 million for the plant - this small, tiny plant, you paid £220 million
- so it must have been a good business.
Then you swiftly set about moving the plant to Mr Firestone: As I understand, Sir, your question was when did we close it? I think we closed the factory 12 years later. Q196 Mr Hoyle: When did you plan the move, and the move started soon after takeover? Is that correct? Mr Firestone: I do not have that ---- Q197 Mr Hoyle: I can give you the job losses if you wish. Mr Firestone: I do not have the date in the early-1990s of the ramp --- Mr Hoyle: I think we can leave it at that. I think we both know the case. Q198 Chair: The significance, you understand, is that Kraft's undertakings on Somerdale, reinforced by the experience of Terry's, creates an impression of a company that is less than straightforward with its future employees. That is the concern for us. Mr Firestone: Yes, Sir. Q199 Mr Binley: It is perhaps worth just helping Mr Firestone who, I understand, is from a different country, that the Vikings also raped as well. I suppose there might be just a little concern in that respect, but let me continue. In 2008 Cadbury's reported revenue growth of 8% and an increase in profitability margin from 10% to 12%, which, by any standards, is an impressive result, and I must say I would have loved my company, the company I founded, to have done so well. Does Kraft hope to improve on this performance, which was achieved during a recession? If so, by how much? How does Kraft's recent performance compare with Cadbury's? Three questions there. Mr Firestone: As we set out in the offer documents (and I believe one of the suggestions is that companies have to provide a business plan and we did provide a business plan in our offer documents), we hope to provide an opportunity for both companies to grow in several ways. One is by increased scale. As this Committee knows, the food industry, particularly on the retail side but also on the manufacturing side, is increasingly consolidating and increasingly competitive. We believe that by bringing these two companies together we can be a much more effective competitor. Mr Binley: Three specific questions, Mr Firestone. Does Kraft hope to improve on this performance? I am sorry, this is business and we both know what we are talking about, the general objectives. Chair: Brian, you were getting an answer to your question, if you let ---- Mr Binley: I do not think I was, specifically. If you would be specific I would be grateful. Q200 Chair: Mr Firestone, please continue. Mr Firestone: I am sorry, Mr Binley; I thought I was answering your question. Mr Binley: It did not impress me. I do not think you were. Let us carry on with the specific questions I asked. Would you like to be reminded of them? Chair: I think the witness knows the questions, Brian. Mr Binley: Okay, if you would give me the answers to those questions. I know your general strategy. Q201 Chair: Brian, please give the witness a chance to answer the question. Mr Firestone: Yes, we absolutely do intend,
in the way that we have described before, to improve the business results of
the combined company. There are
opportunities for entering into new markets - very specific answers, Sir. The two companies are very complementary in
their footprint around the world.
Cadbury, for many, many years, has been very strong in Q202 Mr Binley: I have a business too. I understand the general ethics and precepts of business. Let us now be specific, as I asked you to be. If you hope to improve their performance on the basis of new opportunities, what are your projections of how much that will be on the performance that Cadbury's achieve over the next five years? How much do you hope you will improve that performance? It is not a difficult question. Mr Firestone: If the question is ---- Q203 Mr Binley: I will take "don't know" if you do not know. Mr Firestone: Before I say I do not know I want to make sure if the question is: what would Cadbury as a free-standing company - I do not know because what we are talking about now is a combined entity, and Kraft has given public figures about the performance of the combined entity. Q204 Mr Binley: So you have no projections for a five-year plan or anything of that kind? Mr Firestone: We do but for the combined company. Q205 Mr Binley: What are they then? Mr Firestone: We are estimating 5% growth. Q206 Mr Binley: Over the five years or 5% growth per annum? Mr Firestone: Over, I believe it is, three years, but I will double-check. I will give you the specific figures we released recently. Q207 Mr Binley: You really ought to know that. Mr Firestone: Yes. Q208 Mr Hoyle: What will happen after three years? Mr Firestone: Sir, I do not think any company is really able to predict. Mr Binley: I accept that. Q209 Mr Hoyle: If you had closure plans you would. Mr Firestone: Not necessarily, Sir. As Mr Binley has said ---- Q210 Mr Binley: My third question, which is very specific to this whole issue, is: how does Kraft's recent performance compare with Cadbury, like for like, in terms of the figures I gave you? Do you want me to repeat them? Mr Firestone: No, Sir. I think that there are areas where Cadbury has had stronger returns and areas where Kraft has had stronger returns. One of the complications here, as you well know as a businessman, Sir, is we report on different financial accounting standards. Q211 Mr Binley: I understand that. Mr Firestone: So it is difficult for me to sit here and go through, line-by-line, our two annual reports. Cadbury has certainly had impressive business performance. Our proposition is not that it was a failing company at all; our proposition is that it is a strong company, but that going forward, as an independent, Cadbury, with $9 billion in revenue, did not have nearly the future prospects that it does as part of a combined company with $50 billion in revenue. Q212 Mr Binley: Mr Firestone, Kraft is a heavily indebted company. What I am trying to get at is how much do you see Cadbury's bailing you out - helping Kraft? How much of the decision was based on that premise? Mr Firestone: This combination, Sir, again, is about an opportunity for growth. I will give you specifics on debt because I know that has been a concern, and I believe Mr Dromey referred to us as a "debt-ridden company". One of the key criteria for us and for our Board of Directors in doing this transaction is that we maintain an investment grade credit rating. We were not going to put the investment grade status of Kraft at risk to do this transaction. We met that criterion, Sir. Our credit rating has been reaffirmed by the independent agencies as investment grade. We had $19 billion of debt at the end of 2009. We recently did a bond offering for $9.5 billion which traded very well and continues to trade well and, as all of you know far better than I do, the credit markets have been very difficult in recent years, and we were very pleased by the receptivity of the markets to that debt. Finally, Sir, in answer to your question, Kraft in 2009 had $3.8 billion in cash flow, which we believe is more than ample to meet the debt that we have. This is not a situation where, as was said earlier, the workers are funding the acquisition; this is a situation where we had disciplined financial criteria for the deal from a financial perspective which we satisfied, and were of a standard that the Board insisted we meet. Q213 Mr
Binley: Kraft's takeover document referred to an
opportunity to realise pre-tax cost savings of at least 625 million
annually. How are these savings going to
be realised and how many jobs in Cadbury in the Mr Firestone: Those synergy savings were ones that were in the offer document and were verified in accordance with the Takeover Panel rules by Ernst & Young. They fell into three broad categories. The first was operations, and that was roughly $300 million. By that, I mean opportunities for joint purchasing, procurement, logistics and other areas where by joining Cadbury with Kraft our enhanced scale gives us an opportunity. Second, there were savings in what we call G&A, or general and administrative, which are headquarters operations and we were very clear from the outset that there would be reductions at a headquarters level, that we would not necessarily need two teams of people, say, doing the accounts, and I think that is very common, so there will be savings there. Q214 Mr Binley: How many jobs does that change into? Mr Firestone: We are in the consultation process now and are going through that process to follow the best of both model. We are offering opportunities to people on both the Kraft and Cadbury side. There is no net number yet on that, that is in process. The third area of the synergy savings, as they were described, is in the area of marketing and selling. Again, that is more the efficiencies that come from scale. Q215 Mr
Binley: Where will those jobs be based? Will they be based in the Mr Firestone: The marketing and sales will
be based in the Mr Doyle: It is worth stressing that in the UK Kraft employ a very similar number of marketeers to the number we do. They are obviously operating in different categories as well as chocolate, but it is not dissimilar. Q216 Mr Binley: However, you were arguing that one of the advantages was to internationalise Cadbury on a much greater scale. Your answer, therefore, concerns me in relation to the import to the British market, which I recognise is important. Your argument is that you are going to internationalise Kraft sales much more and that gives me some worry. Mr Bond: I do not think there is a
disconnect between the two answers. Just
to get across the scale of the business: in Cadbury's business only 25% of
global turnover was in the Q217 Mr Binley: I understand that. Mr Firestone: As Marc has been explaining,
we have plenty of opportunities to use our route to market and sales and
marketing opportunities in other parts of Q218 Mr Binley: I have two more questions. What is the amount of new debt that Kraft had to take on in order to buy Cadbury? What will be the impact on Cadbury of the new debt? You have got to find it from somewhere. Mr Firestone: As I said earlier, we
recently did a bond offering of $9.5 billion that was publicly announced. We believe that our cash flow is more than
ample to satisfy that debt. Again, I
would emphasise that this is a transaction about growth through Cadbury's
brands and expertise and the combinations both locally and globally and not
about taking assets out. I know that
there have been concerns and people made metaphors earlier about Vikings and so
on, but that is not the situation here.
I understand that there have been many heartbreaking instances of
takeovers. I have seen it in my own country,
in Q219 Mr Hoyle: Are you saying you have never done that? Mr Firestone: We have not, Sir. We are what I would call a strategic investor. We have certainly made decisions that reduce employment and facilities, but those are hard decisions that every company has to make. What I am saying is we are not, to use the metaphor, going to be Vikings. I understand that is a powerful image and one that is directly opposite. We are here to grow brands. As I said, for over 20 years we have nurtured the Suchard brand which dates to the 19th century, the Freia brand and others. That is what this is about. It does not mean that, like any other company, we will not have to --- Mr Hoyle: Do you think that your former
employees in Chair: Brian is asking his questions at present. Q220 Mr Binley: I have got one and a half more questions really. How much did the bid cost Kraft in terms of advisers, research and documentation? I want to know how good your research was. How much did the bid cost you? Here you are telling us that you did not know about Somerdale to the point where you could make a sensible decision, so costs in terms of the work you did before the bid are pretty important. Can you tell us that? Mr Firestone: May I ask the Chair's permission to submit that in writing afterwards so that I can make sure the number is accurate because some of the fees have not come in. Chair: Yes, thank you. Q221 Mr Binley: Finally, did Kraft have any relationship of any kind whatsoever in the past with Franklin Templeton? Mr Firestone: I heard that question earlier, Sir. Any contact we would have had with any investors was strictly in accordance with the Takeover Code. That means we were not in a position to reveal any non-public information that we did not subsequently reveal and all discussions had to be "policed", the word in the Takeover Code. I am not aware of any relationship that would have influenced their decision. Those funds all made decisions on their own. Q222 Chair: I am afraid we are going to have to move on because we are running short of time. Mr Firestone: I just would like to add one point in response to Mr Binley's question. The board of directors of Cadbury, which included six independent directors, unanimously recommended the bid. There is no doubt that was also an important factor in choices that shareholders made in whether to tender or not. Q223 Mr Binley: They had no choice, but never mind. Mr Firestone: The fact is they did recommend the bid. Chair: I want to turn now to Somerdale in Keynsham. This is really one of the reasons you are here today. It looks like a very cynical decision that was taken by Kraft to hold out the hope of keeping the plant open when Mr Bond himself knew from his long experience that it was absolutely impossible. Either you have been mendacious, cynical or incompetent in your assessment of the business, that is the question we have to satisfy ourselves on now. Q224 Roger Berry: Mr Firestone, could you confirm whether the Takeover Panel is investigating Kraft for breaking the rules that call for bidders "to prepare statements with the highest degree of accuracy" and "not to make statements which...may be misleading or may create uncertainty". Mr Firestone: The Takeover Panel operates in accordance with procedures of confidentiality and I think it is appropriate to defer to them as to the status of their investigation, if any. Q225 Roger Berry: Thank you. Could you remind the Committee of the statement in Kraft's takeover proposal on 7 September last year in relation to Somerdale? Mr Firestone: Yes, Sir. I would like to address Somerdale because that has obviously been a hugely controversial subject and a matter of tremendous concern and damage, as you said, Chair, to our reputation. It really involves three elements: our first statement on 7 September, our statement on 9 December that we would not be able to keep it open, and the future. Q226 Chair: February. Mr Firestone: 9 February, I am sorry, not to keep it open, and then the future. Before addressing the substance, and I will provide as much detail as the Committee requests, I just want to say we understand that we raised expectations and that we --- Q227 Roger Berry: Mr Firestone, I am very happy to let you reply in full but could you just remind the Committee what it was that Kraft actually said? Mr Firestone: The actual text? Q228 Roger Berry: The words. I seem to have forgotten them. Mr Firestone: We believed we would be in a position to keep Somerdale open. Chair: I have Ms Rosenfeld's letter too. Q229 Roger Berry: "...we would be in a position to continue to operate the Somerdale facility, which is currently planned to be closed...". Mr Firestone: Yes. Q230 Roger Berry: Perhaps you would like to carry on with what you were saying. Mr Firestone: I am sorry. You wanted the precise quotation. Q231 Roger Berry: I did, for the record, yes. Mr Firestone: That was the statement. The intent was as I have said. I would like to take this opportunity before this Committee, to Parliament, Unite and my colleagues to say we fully understand that for over two years employees and colleagues at Somerdale had been through a closure process and that our statement of 7 September that Mr Berry just quoted created uncertainty about the plans and on 9 February, when we announced that we would be unable to carry forward, hopes and expectations were dashed, as I said earlier, and we are terribly sorry about that. I personally am terribly sorry about that. I was asked earlier what role what I had. I was there in the room when that statement was drafted and I do sincerely, personally, express my apology that we have created that uncertainty and we are not able to carry forward with that. Q232 Roger Berry: Since you were there in the room and participated in the agreement of that statement, could you advise the Committee on what basis Kraft made that statement? Mr Firestone: Yes, Sir, I can. One of the key points, as Trevor was saying
earlier, is that there is a tremendous difference between Cadbury and Kraft in
regard to scale. I hope later to have
the opportunity when we talk about charities and foundations to talk about the
tremendous similarities, but one difference is scale. When we envisioned the combined manufacturing
network of Kraft and Cadbury, we believed that we would be in a position to
maintain production in Somerdale in the Q233 Roger Berry: Before you come to that part, Mr Firestone, and I do want to hear that very carefully, when you made that public statement on 7 September after you had done your analysis of the situation, can I be quite clear was that analysis the analysis of Kraft? Did you take any advice? Do you have advisers and, if so, who were they? Mr Firestone: We obviously knew our own
statistics and figures and production requirements and we had what was
available to us from the public record about Cadbury. At the outset we had hoped this would be a
friendly transaction in which both companies would negotiate everything from
employment guarantees to charitable contribution, but that was not the
case. We had access to our own data, we
had what was publicly available. Our
internal experts and our advisers on the transaction, the law firms, the banks
and others looking at it, did look at the entire set of documents, as is
customary and required, frankly, in any kind of Q234 Roger Berry: So you are in a position to let the Committee know, if not now then subsequently in writing, who the advisers were who confirmed your view that making this commitment in relation to Somerdale was a perfectly reasonable thing? Mr Firestone: Yes, Sir. We made a statement that we believed we would
be in a position to keep the factory operational. We made that statement in good faith. I assure you that we acted in good
faith. We had no desire to put something
in there that we would not be able to fulfil, particularly given the
consequences that were foreseeable and that I am experiencing today. Second, we had a reasoned basis for it. As I said, there were operational rationales
that underlay this statement. Third, we
had a reasonable basis to believe that we would be able to execute it. The public record from Cadbury indicated that
the phase-down of Somerdale and the phase-up in Mr Doyle: If I could just make a couple of points. The first point is clearly there was no dialogue between Cadbury and Kraft in the period from September through to the end of January and, therefore, no exchange of information. The plans that we had around Somerdale were very complex. The production is not planned to move from Somerdale to one factory but, indeed, three. 30% of the volume moves to Bournville and Bournville, therefore, receive production investment as a consequence, some of the production is moving to an extension of an existing Cadbury facility in Poland, and the remaining volume is moving to a greenfield facility for which in September, end of August, basically the walls and the ceilings were on but none of the equipment had been laid down. The majority of the planning of that equipment going into that facility has taken place in that period from September through to the current day. Those were things that clearly we had not put into the public domain, they were commercially sensitive, and we certainly would not and could not have shared those with Kraft. Q235 Roger Berry: Are we seriously being asked to believe that Kraft, with all the skills, expertise and financial resources at its disposal for a takeover of this kind, could get this so spectacularly wrong by just making a mistake? Mr Firestone: Sir, there were factors as Richard just said. Q236 Roger Berry: What other mistakes might follow further down the line if this one was so badly judged? Mr Firestone: I emphasise again that we had a commercial rationale for this statement and part two is why did we decide that we could not carry through with it. Roger Berry: Before we come to that, why did you make the statement unless there was not absolutely cast-iron solid evidence for it? You knew presumably that a lot of people were going to have their expectations raised by that statement. Why did you make a statement without cast-iron evidence? Q237 Mr Hoyle: Speculative. Mr Firestone: Mr Hoyle said was it speculative --- Roger Berry: I am asking the questions, ignore him! Q238 Mr Hoyle: I will ask the question. Was it speculative? Mr Firestone: I am trying to be respectful
and learning the etiquette here. I
apologise if I am not answering in the right way. We wrote the statement as an expression of
belief saying, "we believed we would be in a position...". We did not make a cast-iron statement. Indeed, many people have criticised us for
not having made a cast-iron statement.
There has been testimony before this Committee that Kraft made no
guarantees. There was interest, as there
is today, in what our plans were for the Mr Binley: That is nonsense, with respect. Chair: Let Roger ask his questions. Q239 Roger Berry: Are you seriously suggesting that with the resources at your disposal you could not have checked on that? Mr Firestone: Yes. Q240 Roger Berry: Like getting on an aeroplane or Googling? Seriously, are you telling me that? It was so fundamentally important to your takeover bid, but you are claiming ignorance on a massive scale. Mr Firestone: Sir, we did Google it. We had satellite images of it and what those could only show was the exterior of the facility, they could not show the enormous investment in bespoke equipment that Cadbury was putting into that plant. It was confidential, and I believe Richard and Trevor will back me up that that was not known to us or knowable to us publicly. Q241 Roger Berry: So why did you make this statement? You know that the Takeover Code specifically requires companies in your position not to create uncertainty and not to give misleading statements. Do you now recognise in hindsight that you did give misleading statements and people were foolish at the time to applaud you for the opportunity this takeover gave to the workers at Somerdale? Mr Firestone: We made the statement based
on sound commercial logic and are terribly disappointed that we are not able to
carry on, first, as I said earlier, because the workers were disappointed but,
second, it was not what we had hoped commercially. Purely from a commercial perspective we
indeed wanted to be able to use the Q242 Roger
Berry: You are right in observing that a lot of us
find this difficult to believe. Can I
try one more time? You knew about
Cadbury's decision on Somerdale, you knew about Mr Firestone: We checked all available sources and those were all consistent with our statement. The statements publicly by Cadbury's top management about the timing, which forecast a 2010-11 switchover, did not say that the investments were going in at this magnitude during that period. Q243 Chair: I have got some records in front of me. The Cadbury press release, which Mr Bond issued, says: "The closure will be from 2009-10". Is that correct, Mr Bond? Mr Bond: That is correct. Q244 Chair: So that is inconsistent with what Mr Firestone has just said? Mr Bond: No. As Richard has just explained, it is quite a
complicated transfer: the closure of Somerdale, one-third of the volume going
to Bournville, two-thirds going to Q245 Chair: I am sorry, Roger, I have interrupted your flow, which I should not have done. I have got a Telegraph report in front of me from 11 September last year saying, "This week another tranche of Somerdale workers received letters detailing their departure". These plans were very, very public. Mr Bond: Yes. Mr Doyle: Yes. Just on that particular point, we have worked very hard on the Somerdale site to accommodate individuals' needs and own plans. Obviously it was a very difficult decision that we communicated in 2007, a number of people have been working to their futures and quite a large number of people are caught by the change in legislation around pension changes in April of this year and we have worked very hard to accommodate people who wanted to leave early. Anybody who has left to date has left of their own volition. Q246 Roger
Berry: With respect, that is not the point. There was an enormous amount in the public
domain about the new plant in Mr Firestone: It is not the case, Sir. We made the statement in good faith. There are two sets of dates, the dates
related to Somerdale and the dates related to the full production in Mr Hoyle: Can I just say the only other thing that has not been added here. Even the union, Unite, pleaded with you not to mislead the workers of this plant and you totally ignored what the union were saying to you and you misled them as well. Would you like to apologise on behalf of Ms Rosenfeld today to the workers? Chair: Mr Hoyle has jumped ahead of my colleague, so I will let that question lie on the table. Mr Hoyle: I am going, Chairman, but I just want to put it on the record would you like to apologise on behalf of Ms Rosenfeld? Q247 Lembit
Öpik: Returning to Mr Mr Firestone: I do not think there was
anything in the British press that described the state of the works in the
Polish facility to the level of detail which we learned about after we first
had access. I do not want anybody to
think that I am saying we were not aware that Somerdale was being closed, of
course we were aware of that. We were
well aware of that and the timing, but what we were not aware of was Cadbury's
plan in order to maintain customer satisfaction levels which involved massive
investments in Q248 Roger Berry: If you did not know the state of the works why on earth did you make that statement? Mr Firestone: Again, I can only say based
on what we had read publicly our business rationale was consistent with what we
believed to be the state of play.
Indeed, when we made the statement the machinery had not, in fact, gone
into the factory. It was wide open at
that point in Chair: So you guessed, that is the bottom line. Q249 Roger Berry: You have just admitted you knew the uncertainty about the future. Mr Firestone: Yes. Roger Berry: Yet you made a statement that quite deliberately generated uncertainty which is contrary to the Code. Frankly, if the Takeover Panel did not immediately start investigating you after that statement they certainly should have done. How on earth could you make a commitment like the commitment you made on 7 September when you admit that basically you were winging it? This is extraordinary. You were treating people with enormous disrespect and misleading them and conning them into coming behind a view that said perhaps the Kraft takeover of Cadbury might not be too bad after all, which was what a number of people locally ended up saying for whatever reason. You must have known that would have happened. It is inconceivable that you did not know. Q250 Lembit Öpik: Once again using my Procter & Gamble experience, and accepting what you have said for the sake of argument, which you can guess the Committee is somewhat sceptical about but let us say it is the case, I think in my old company people would have been managed out of the business for that, or fired to use an English phrase. What disciplinary processes have taken place or who has been fired for what would have been regarded as utter incompetence at the very least in my old company, a company which is very ethical and has certain similarities to Kraft? Mr Firestone: Sir, when we made the statement we had every expectation that the facts were as we believed them to be at the time. Until the end of January we did not have access to the material new information that led to the decision that we would not be able to keep Somerdale operational. I cannot do more than tell you what happened. Q251 Lembit Öpik: I do not like to talk across you, Sir, but I would like to say that if I had been responsible for buying Cadbury on behalf of Procter & Gamble and afterwards it turned out that there was this colossal absence of information which was going to completely change the actual outcome of the arrangements, I would not be working for Procter & Gamble any more. Has anybody been disciplined or fired as a result of what seems to me like a monumentally poor act of business? Mr Firestone: No one has been fired, Sir. I will emphasise again that we are indeed sorry - Mr Hoyle has left - that we have created it. I have told you the facts as they were. With all sincerity, that was what we believed at the time. I have described what we learned after we had access to Cadbury. I have seen for myself the machinery that was put into these facilities unbeknownst to us and absolutely out of our reach short of techniques that were not available to us. It may be hard to believe, Sir, I can only tell you the facts as they were. The question about Somerdale is the future. There was a question earlier, "Does Kraft stand behind the programmes that are in place for the colleagues there?" Yes. Q252 Lembit Öpik: Just to finish off. I have got many questions but I know I am only allowed this one. Therefore I am to understand that no one has been disciplined for what happened, but are you basically saying the reason this happened was because Cadbury either lied to you implicitly or simply withheld absolutely core information in terms of the takeover and the future? Mr Firestone: I am saying that we did not have access to the information. During the process, to my knowledge, Cadbury never issued a public statement saying that our statement on Somerdale was ill founded. They made all sorts of statements about Kraft, some of which were fairly strongly worded, but I do not recall ever hearing a statement from Cadbury itself about Somerdale. During an unsolicited or hostile process they never provided us with any of these data, it was only after the recommendation and then some that we first got those data. Q253 Lembit Öpik: Do you feel misled by Cadbury and that is why this happened? Mr Firestone: I do not feel misled by Cadbury, I feel that we did not have access to data that Cadbury had that shows the process of converting the production is not typical of what food companies normally do. I believe that Trevor and Richard will agree with me that it was not typical in Cadbury's history to do it that way. Mr Doyle: As I said earlier, there was no dialogue between the two businesses as is very typical in a process such as this one. Q254 Lembit Öpik: I used to be in human resources and I could never, ever have allowed this to happen. With any conscious or any ethical responsibility to my trade, let alone my company, I could never have allowed Kraft to believe what they did because I would have felt I was letting down the people I was the human resources manager for. Mr Bond: To be clear, we were in a hostile takeover bid and, therefore, we were not able to exchange any data on Somerdale or any other parts of our business. If we had done so we would have been breaching the Code, so clearly we did not comment either publicly or to Kraft privately on any of the relationship regarding the Somerdale move. Q255 Lembit Öpik: If you had done so it might have stopped the hostile takeover bid. Mr Bond: We would not have been acting legally. Q256 Mr
Binley: You talked about the future, Mr Firestone, but
I am afraid the future is going to be very blemished by the fact that many
people think, and I am going to be perfectly frank here, that Kraft has
lied. That is the truth of the matter in
this country. Let me tell you why that
belief is even more embedded in my mind than it was before you started. You would not tell me how much your
researchers cost. Let me tell you, you
should be on to them straight away to get your money back because either they
did not give you the information that they should have done or you did not take
note of the information. Let me talk
about two particular things. You talk
about knowing there was a building in Mr Firestone: Sir, we were well aware of the facility and we were well aware of the building permits and the dimensions. That was clearly all public domain. What we were not aware of were the plans for the internal structure of the building. We were not aware of the status of the machinery going into that facility. We were not aware of the products that Cadbury was designing to make in that facility. It happened after we made the statement. As of 7 September, if we had somehow got inside that building we would have seen an empty building and an empty building is one which, if the bid had gone friendly as we hoped, we could have jointly designed to meet Cadbury production needs and Kraft production needs. That was the state of the building when we made the statement. It was October, November, December that all of this machinery went into the building. I know you do not believe me, Sir, but those are the facts. Mr Binley: I certainly do not. Okay, that is enough I think. Q257 Miss Kirkbride: Just a quick one on this because, frankly, Mr Firestone, it is stretching the credulity of the Committee to accept your statements. I wonder if Mr Bond could just explain what was said earlier which was that Cadbury were doing this in secret and these new production facilities were being put in in secret. Is that true and how credible is it really that Kraft somewhere on the international confectionary grapevine did not actually know what you were doing? Mr Bond: Clearly with a big move like
this it is not something that we make public other than during the consultation
process with our workers. It is vital
for us that we secure customer service throughout the move hence, as Marc has
explained, we have done a series of parallel runs. The move is really quite complicated. A third of the production goes to Bournville
and two-thirds go across two different sites in Q258 Miss
Kirkbride: Was it credible to know which products were
going to Mr Bond: The point being, as we talked earlier about on, and I never thought I would be in front of a Select Committee talking about Curly Wurly, the Curly Wurly plant only makes Curly Wurly and, therefore, when we buy that machinery and install it, it has a big impact on the plans that Marc talked about from a Kraft point of view. Confectionary machinery is fairly specific to the product that is made and as soon as it is installed you cannot make anything else on it. Mr Firestone: The other aspect that was
unknown, and I will give an example of concrete evidence of confidentiality, is
the following. Cadbury had the Wedel
business in Q259 Roger
Berry: This is just a factual question. The very expensive machinery being installed
in Mr Bond: Tens of millions. Q260 Roger Berry: How many tens of millions? Mr Bond: Which plant over which timeframe? Q261 Roger Berry: The things that Mr Firestone did not know about. Mr Bond: Our Skarbimierz build in total was about £100 million, I think. Q262 Roger
Berry: So there was £100 million of very expensive
machinery being installed in Mr Firestone: That was just in Skarbimierz and in the other facility there were other tens of millions. Q263 Roger Berry: Earlier you said there was lots of confidential information that was not available. That was your phrase, correct? Mr Firestone: Yes, there was important material confidential information. Q264 Roger Berry: Lots of information not available? Mr Firestone: Yes, Sir. Q265 Roger Berry: Notwithstanding the Code on takeovers, you still felt you could issue a public statement in the name of your chief executive saying that your desire was to keep open Somerdale despite the fact, as you have said, there was lots of information that simply was not available to you. How responsible do you think that is? Mr Firestone: As you said, Sir --- Q266 Roger Berry: Or how irresponsible do you believe that to be? Mr Firestone: I will say I believe it was
responsible because it was, as you said, our desire for the reasons I
said. Our rationale that supported that
statement remains valid. I mentioned the
currency exchange rate, that remains valid.
I mentioned our capacity requirements, that remains valid. I mentioned our desire to have Chair: I think we are going round in circles here. Q267 Ian Stewart: Mr Firestone, in a hostile takeover there is no due diligence period but there has to come a point when in your bid to take over this company you start to become successful and start to get information. When did you first come to realise the situation about the Polish site? Mr Firestone: At the end of January, shortly before 2 February. 2 February was day 60 under the Takeover Code rules. Shortly before that we began to receive information from Cadbury about the state of play between the two facilities and only over the succeeding days, especially after 2 February when we had exceeded the 50% threshold, did we have full access. What that enabled us to do was marry up the data from the Cadbury side with the data from the Kraft side and to assess as carefully as we could whether we should or could continue with Somerdale or not. Q268 Ian Stewart: This is helpful to me. You got this information and this understanding at the end of January as you say. Mr Firestone: Yes, Sir. Q269 Ian Stewart: At what point did it become clear to Kraft that they actually could not carry out that commitment? Mr Firestone: There was a discussion internally among the experts and the people who had met with Cadbury, the people who understood our manufacturing footprint, on 4 February when they reviewed what we had learned, they reviewed what the obstacles would be and they assessed the feasibility of going forward either (a) maintain Somerdale on full production, (b) look at alternatives to Somerdale production, or (c) other alternatives. They assessed those opportunities or not, as the case may be, and then on 5 February made a recommendation that we announced that we would not be able to maintain Somerdale. Mr Doyle: It is probably worth stressing that at that period of time as soon as we were able to talk together, as Marc says at the end of January into early February, Trevor and I and our colleagues at Kraft made it an absolute priority to make a decision to give the employees in Somerdale certainty. That was something they appreciated and was certainly something that Trevor and I, and our colleagues, viewed as an absolute priority, hence the speed at which we were able to get the decision. Q270 Ian Stewart: When was that? Mr Doyle: In that period as Marc has described from the end of January through to the point when I went to the site to communicate the decision on 9 February. Q271 Ian Stewart: So when did the decision makers get to know that a conclusion had been reached at the end of January, or whenever, that this was not a goer to continue with the plans to try and keep the site open? Mr Firestone: The internal decision makers? Q272 Ian Stewart: Yes. Mr Firestone: There was a decision among the team that was charged to look at it on 4 February that was presented on 5 February and the final decision was made on 5 February. Q273 Ian Stewart: If a decision was made in the first week of February the understanding that it was not feasible would have come in January as you have pointed out, is that right? Mr Bond: No, I think what we --- Q274 Ian Stewart: I am sorry, I am asking Mr Firestone. Mr Bond: I am trying to give the context. Q275 Ian Stewart: I will give you the opportunity to say whatever you wish to say, but could you just tell me from Kraft's point of view? Mr Firestone: Yes, Sir. I believe it was on 31 January that we received materials from Cadbury that gave us internal information from Cadbury about the status of Somerdale, the transfer to Bournville and the transfer to Skarbimierz. Q276 Ian Stewart: I think I have got that. Could you just tell me who is "us"? Mr Firestone: Us? Q277 Ian Stewart: When you say "we received", who is "we"? Who is "us"? Specifically name the people. Is it you? Is it the chief executive? Who are the decision makers? Mr Firestone: Those are two questions. Who received the information was your first question. Q278 Ian Stewart: Who knew about it? Mr Firestone: A number of people knew about it. Q279 Ian Stewart: For example, did the chief executive know about it? Mr Firestone: She was briefed. The document first went to a gentleman named Tim Colfer, who is co-lead in integration with a gentleman named Mark Reckitt, who is a senior vice-president from Cadbury. This was high on the priorities. Once we believed the deal would go through, this was very high on the priorities. Mr Colfer requested information from Cadbury and it came in, a review process went forward and by 4 February there was a discussion. Q280 Ian Stewart: We have heard all that. Could you stop there, please, because we have limited time? Mr Firestone: Yes. I would like to talk about the guarantees. Q281 Ian Stewart: The question I asked you was who knew about it and when did they know about it. I specifically asked you whether your chief executive knew about it at the end of January and I think you said yes to that. Mr Firestone: I just want to be careful what we say because the chief executive knew that there were concerns expressed particularly from the Cadbury side about the feasibility of keeping Somerdale open. Q282 Ian Stewart: Was she briefed? Mr Firestone: She had an initial briefing. She asked for a complete review recognising the sensitivity. Q283 Ian
Stewart: Can I stop you there. That seems a logical process to me. You have made a commitment as a company and
you have been criticised for it here today - I am not going back to that - but
you were aware of potential criticism that may come to your company so you got
to the point where you said you realised at the end of January the top decision
makers realised something had to be done and then went on to describe a process
over the next week but they realised that at the end of January, including your
Mr Firestone: What we heard was a high
degree of scepticism from the Cadbury side and that was why we wanted to look
at our own data. Cadbury obviously had
made a decision two and a half years earlier and firmly believed that their
decision was the right one, but they did not have our perspective necessarily
of the combined manufacturing footprint so we wanted to look at the two. As others have said, including here, we
needed to compare the two sets of data before making a final decision. We did not take the decision lightly
essentially to reverse course. It was by
4 February that the two sides' experts had had the time to review the
information and then make a recommendation on around 5 February to our Q284 Ian
Stewart: Would your Mr Firestone: I just want to be careful when I am answering the question. It was known that there was concern about the feasibility and we did not want to make a firm commitment. Again, we were publicly criticised for not being more definitive. We were not able to be more definitive at that point because it had become increasingly clear that we might not be able to keep Somerdale open. Q285 Ian Stewart: One week later your company announced that it did not intend to keep Somerdale open. Mr Firestone: Yes, we moved quickly. Q286 Ian Stewart: Are you telling me that your chief executive was not in a position to understand what would happen a week later? Mr Firestone: I am in a position to tell you we had not made a decision then, yes. We wanted to take a careful look. We wanted to act prudently but we wanted to act quickly. Q287 Ian
Stewart: Mr Firestone, can I just put this
to you as concisely as I can. Your
company made a commitment and you stand criticised in the Mr Firestone: Again, Sir, we had received information about Cadbury's plans and we made a decision on 5 February which we promptly communicated on 9 February. Ms Rosenfeld did not commit that we would, in fact, keep Somerdale open when she met on 2 February, if that was the question. Q288 Ian Stewart: Let us leave that because there are other issues. What arises out of this, and you must accept this, Mr Firestone, is that your company, Kraft, have really taken a dent as to your integrity and, indeed, your honesty as a proper company in this country. Do you understand that? If you do understand it, you have apologised several times today but what actions are you going to take to reinstate your company's credibility? Mr Firestone: Thank you for the opportunity. I absolutely do understand it. Kraft has existed for over 100 years and we have worked very hard to build a reputation for honesty. In the materials the Chair referred to, and I heard the laughter, I will emphasise I wrote myself in the materials to which the Chair referred that you can build a reputation for 100 years and lose it in a second. I take this personally with tremendous seriousness. That is why I have tried as best as I can to explain the technical details and I would like now to have just a minute to explain in response to Mr Stewart's question the future. For Somerdale I have reviewed in detail the plans that are in place to help the colleagues there to find other positions, to have certification, to have other opportunities. Kraft 100% stands behind them. I have reviewed the plans that Cadbury had commissioned and submitted to Baines, the council there, for redevelopment of the site. We have not yet heard back. Kraft, and I personally, if that would be helpful, are fully committed to working with the community and the council to find the best possible use for the facility and the land. I am well aware of the Fry Club and its importance to that community. Kraft and, again, if it helps, I personally are fully committed to that. I have also heard very clearly the call for concrete, cast-iron guarantees about manufacturing and compulsory redundancies. I would state what Trevor and others in business understand, that facilities have to be competitive in order for a business to be successful. Chair: I do not want to interrupt your flow but we want to go into some of these in a little more detail later. Q289 Ian Stewart: We will come back to those. Mr Firestone: I want to be very concrete about the future, but if this is not the time. Chair: There are one or two other things that worry us and if we have not covered them all by the end you can tidy up with some things we might have forgotten. Roger, have you got your assurances on the Somerdale site that you wanted or do you want to ask some more questions? Q290 Roger Berry: I think in relation to the Fry Club and the Somerdale site, given the time, I had better leave it at the answers we have had. Mr Doyle: Representing the Cadbury side and the employees at Somerdale, those assurances that Marc has provided today have been communicated to employees in Somerdale. Excellent levels of support are being provided to them. We have a Jobcentre facility on the site available to them and we have been undertaking a significant amount of retraining for the employees on site. We are doing all of those things as well as the severance terms and the arrangements around leaving. Q291 Roger Berry: It has been in the local press. The assurances that I understand have been given to the local MP, to Dan Norris, about the future of the Fry Club and the site, those assurances are still there? Mr Doyle: Yes. Mr Firestone: Cast-iron. Chair: What I want to do now,
bearing in mind we all agree that Kraft have suffered great reputational damage
in the Miss Kirkbride: 150 redundancies have been
announced in the legal, finance and communications departments, some of which
are in Uxbridge, Q292 Chair: I am sorry, I am going to be disciplined. Can we talk about Bournville only at this stage? Mr Doyle: Marc explained earlier that
when the acquisition was completed Kraft made it very clear that the corporate
headquarters of the new combined business would remain in the Q293 Miss Kirkbride: Are there any other job losses planned at Bournville? Mr Doyle: As I say, those are the job
losses that pertain to the movement of headquarters. Within Bournville we have a manufacturing
facility but we also have a significant office facility that supports the
corporate headquarters I have described but also our Q294 Miss Kirkbride: We know about the 150, can you elucidate on any further plans you have as to how the plan is going to be developed or where job losses might occur? Mr Doyle: As we have alluded to we are currently vesting around £30 million into the Bournville manufacturing facility. Kraft very quickly confirmed that should continue. This is off the back of investments in excess of 100 million over the last five years. We have been investing and continue to invest very heavily in the Bournville facility. Q295 Miss
Kirkbride: So you are very committed to maintaining the
high value jobs in Bournville which, of course, is key for the Mr Doyle: Bournville supports a range of different types of jobs from manufacturing employees to office-based employees. You will recall that we spent in excess of £20 million creating the very modern office environment in a 100-year-old heritage building in Bournville and that is a core part of that facility. Q296 Miss Kirkbride: So we can be satisfied that you will keep the very well paid jobs in the new office block that you have just described as well as the manufacturing jobs and, although as important, nevertheless you want the spectrum of jobs, not just the lower end value chain at Bournville. I see that Mr Firestone is nodding. We can be guaranteed of that, can we, at Bournville? Mr Firestone: There are two subjects here. I know that innovation, knowledge workers, avoiding "brain drain" is very important, and I have also heard from Mr Formby and Mr Dromey that there is a concern about manufacturing jobs. If you like I can address both of those in specific terms if this is the appropriate time. Q297 Chair: Yes, that is fine. Mr Firestone: As I was saying earlier, like
any company we need to be competitive in our manufacturing. I will start with manufacturing because that
was the first panel's concern. There are
certain programmes that Richard can describe in detail that Cadbury has already
negotiated with the unions and communicated to the employees. Obviously Somerdale's closure as a facility
has already been announced. Because I
have heard what Mr Formby and Mr Dromey said, I have heard what the Committee
has said and I have read what the press has said, it is clear that our
reputation requires action more than words.
First, I will say that we can commit that for a period of at least two
years there will be no further closures of manufacturing facilities in the Q298 Chair: So that is a clear commitment to keep Reading
Scientific Services Ltd at Mr Firestone: We are committed to it - I want to be careful
because I do not think anybody could ever say "in perpetuity", but from what we
have seen so far we certainly intend to maintain that operation, subject to the
third party contracts. But, yes, Mr Bond: It is right that the Committee are concerned
about that area, because a lot of the growth we have enjoyed in Cadbury has
come from the ideas generated in the Q299 Chair: How important is the Chocolate Innovation Centre at Bourneville? Mr Bond: A big part of chocolate innovation is done in Q300 Chair: So you remain committed to innovation at Bourneville as well? Mr Bond: We are certainly committed to growing that
product base out of the Mr Firestone: One distinction is that we will always want R&D capabilities - whether on the R side in Reading or the D side in Bourneville - for the UK market, and then as we go forward we will see how best to use those technologies and technical capabilities for the worldwide market. Q301 Ian
Stewart: In the Mr Firestone: Manufacturing, yes. Q302 Ian
Stewart: Does that include the Kraft
headquarters at Mr Firestone: I was trying to be very specific and talk about manufacturing. We have been very clear from the outset that we would not need the multiple facilities and, as the questions earlier --- Q303 Ian
Stewart: Does that mean that Mr Firestone: No, we have not made a decision; we are in the consultation process to which you refer. Q304 Ian Stewart: Did you convey that information you have just supplied the Committee with to the recognised trade union? Mr Firestone: They are hearing it now in response to what ---- Q305 Ian Stewart: I am sorry, Mr Firestone, you have to be very specific here. Passing information that is pertinent to collective bargaining under the laws of this land is not met by telling a Select Committee in Parliament; it is met by carrying out your obligation to consult genuinely and meaningfully with the recognised trade union, in this case Unite. Have you done that? Mr Firestone: No, Sir, but we absolutely will do so. It was clear that we were expected, I was expected, to come here with what was described as cast iron guarantees including in regard to manufacturing. I do not mean an effort to address that, to listen and respond, to subvert our legal duties which we will absolutely honour. I would be delighted to meet with anyone from Unite - Richard Doyle regularly does so - and we look forward to rebuilding a constructive conversation. I do not feel in being responsive we are being irresponsible. We are responding to what we have heard people are asking. Q306 Ian Stewart: Do you not understand, Mr Firestone, that you as a company, Kraft, has been criticised for not carrying out your proper obligations in terms of collective bargaining with the recognised trade union, and that you do the company's reputation do good by not consulting properly and bargaining properly with the recognised trade union? Mr Doyle: Could I just stress that --- Ian Stewart: Sorry, my question is to Mr Firestone as Kraft. Chair: Mr Doyle has legal responsibilities. Q307 Ian Stewart: I will come to Mr Doyle in a minute. I want to know Kraft's view. Mr Firestone: I am not aware that Kraft has stood accused of breaching its collective bargaining duties, no, Sir. Q308 Ian Stewart: You do understand that you, today, have given information which is pertinent to that collective bargaining process which you have not given to the recognised union? Mr Firestone: Yes, Sir, but I thought that the expectation was we would come and say these things. Q309 Ian Stewart: You wanted to say something, Mr Doyle? Mr Doyle: I wanted to stress from my
perspective, Kraft are under no legal or otherwise obligation to make the
statements that Marc has made. I
certainly see them as very positive to Cadbury employees in the Q310 Ian Stewart: Mr Doyle, stop there please. You, by speaking out, have taken the responsibility to yourself for these issues. Are you aware of your obligation to consult at the earliest opportunity in a meaningful way? Mr Doyle: I am absolutely aware of --- Q311 Ian Stewart: You do not consider this information which has been given today to be pertinent to those discussions? Mr Doyle: Our obligations around consultation are where there are structural changes being made to the business. This is indeed giving a commitment there will be no structural changes to those manufacturing facilities over at least a two year period. Chair: I think this is quite a narrow point. Q312 Ian Stewart: Let me move on to some other terms and conditions issues. I have to tell you, I am left feeling today that whilst you, Mr Bond and Mr Doyle, quite sincerely, I am sure, believe that you have power to control your section of the Kraft company in Europe for the future - I do not question your sincerity - I am left feeling that you do not know what you do not know, in other words what Kraft have in mind for the future. That is why I keep referring to Mr Firestone when I want to know what Kraft thinks. I do not mean any insult or slight to either of you. Mr Doyle: No. Ian Stewart: What plans have Kraft for increasing the
workforce outside of those jobs which may or may not be transferred from
elsewhere in the Q313 Chair: Specifically from Mr Bond: As I have mentioned and as Marc has mentioned many times, this acquisition is about our growth prospects going forward. We in Cadbury have been very successful, and certainly in the UK Kraft have been very successful over the past few years, and with growth comes opportunities for all of us. We are committed to growing our business. That is what will make Kraft a successful business into the future; long-term growth prospects. So with growth comes opportunities for all colleagues. Q314 Chair: Just pushing this Irish point, are you
planning to move jobs from Mr Bond: Not that I am aware of, no. Q315 Chair: There are no plans to shed --- Mr Doyle: No plans. Mr Bond: Just as a point of clarification, we do
manufacture products in Q316 Ian Stewart: Does Kraft concur with what has just been said? Mr Firestone: To the best of my knowledge, yes, Sir. Q317 Ian Stewart: That is a lawyer's answer if ever I have heard one! Mr Firestone: I slipped once in almost two hours, I apologise. I beg the Chairman's indulgence. Q318 Ian Stewart: I think some of you were in the room when Jack Dromey and Jennie were giving their answers to us? Mr Firestone: Yes, Sir. Q319 Ian Stewart: You will have heard Jack Dromey quite succinctly highlight several concerns of the union members, of your workers, in relation to job security, terms and conditions, pensions and so on. Mr Firestone: Yes, Sir. Ian Stewart: Would you now like to take the opportunity to tell us what plans you have to secure those or to alter them in any way? Chair: I am conscious of the fact that you might fall foul of Mr Stewart's injunction not to enter into collective bargaining across the Select Committee table. Q320 Ian Stewart: That is their choice, Chairman, not ours. Say what you wish to say. Mr Firestone: I pause because what I thought would be a positive statement you have warned me may in fact be inappropriate but in the spirit of trying to be open and transparent -- Q321 Ian Stewart: Can I be clear with you, Mr Firestone? It is not inappropriate for any witnesses to give this Committee any information they wish to, my point was that it would have been more appropriate to actually have shared that with the trade union recognised for bargaining before you got here. Mr Firestone: I understand that and I look forward to have the chance to have a conversation and for Richard to continue. One of the points which was mentioned was terms and conditions, and we said in our prior document that we would honour all existing contracts, and we will. One of the questions which came up was pensions --- Mr Doyle: Shall I take pensions because I am intimately involved in the pension changes both as a trustee and in my capacity as Human Resources Director. Obviously it is an area which is very important to all of our colleagues. Cadbury have operated occupational pension schemes, and outstanding ones at that, since 1906. Kraft have communicated jointly with the trustees of the pension fund and its entire membership to say they are very much looking forward to continuing the excellent partnership between Cadbury, as a sponsoring business, and the trustees in the Kraft world. Q322 Ian Stewart: Can I stop you please, Mr Doyle. We know all the warm words stuff, we expect that, but could you cut it out just now and address the key issues? Are you going to maintain the pensions scheme, the final salary scheme, and how are you going to deal with the pensions deficit? These are the things which the workers and this Committee need to know. Mr Doyle: Let us start with the
pensions deficit. We, Cadbury, prior to
Kraft's involvement, had been working on how we ensure that the Q323 Ian Stewart: You have heard the difference between the statement that Mr Firestone made today about no compulsory redundancies in manufacturing for two years, and the statement that Mr Dromey made, that the union was seeking commitments for five years. It is not for us to put ourselves in the place of either the employer or the trade union, but can you tell us when you expect to enter into discussions about these issues with Unite the union? Mr Doyle: Trevor and I have a meeting next week with Jennie and the team. Jennie has been meeting on an on-going basis with myself and my team in the way you would expect. The primary point of contact between Unite and the business is through the Cadbury team that they represent and clearly now that I, Trevor and my colleagues are members of Kraft, that point of contact will continue. I hope and expect the nature of the relationship to remain positive as it has been for many, many years. Q324 Ian
Stewart: Mr Firestone, is it Kraft's
intention to meet its obligations under Mr Firestone: Yes, it is absolutely our intention to comply
with Chair: We have about ten minutes or so left and we have one whole area of questioning which we have not gone into yet. I am going to ask colleagues asking these questions, particularly Lembit, to be telegraphic in their communication of questions please. Q325 Lembit Öpik: It is a shopping list of things really and child's play compared to the rest of the session I think, depending what you say of course! Mr Firestone: Yes, Sir. Q326 Lembit
Öpik: These are the kind of
concerns that various people have raised with us and they are your social
responsibilities and these sorts of things.
Cadbury have made some very important announcements in our view about
its commitment to and the extension of Fair Trade products. Will Diary Milk be certified as Fair Trade in
Mr Firestone: Yes. Mr Bond: Yes. Q327 Lembit Öpik: Will Green and Blacks move its entire range to Fair Trade? Mr Bond: By the end of next year, yes. Q328 Lembit Öpik: By the end of 2011? Mr Bond: Yes. Short answers are all right, are they? Chair: Yes. They are less open to interpretation, so they are welcome. Q329 Lembit Öpik: There is no problem with that at all. A spokesperson from Kraft now states that Kraft looks forward, "to maintaining Cadbury's heritage in ethical sourcing". How are you going to maintain that heritage? Mr Firestone: We will operate our combined supply chain in a way which meets the high standards of Cadbury and Kraft, whether through Fair Trade or other practices. Mr Bond: It was news to me, for example, that Kraft are the biggest users in the world of Rainforest Alliance cocoa - Rainforest Alliance being a similar body to Fair Trade - and the biggest users of Rainforest Alliance coffee in the world as well. So I think there are similarities. There are differences between the two companies' approaches but they certainly have ethical sourcing within their roots. Mr Firestone: We entered into a major partnership recently with the Bill and Melinda Gates Foundation on ethical sourcing, sustainable agriculture, which is very important and is something we can expand now that we are with Cadbury. Q330 Lembit Öpik: Are you guaranteeing you will honour all the Fair Trade and also the Cocoa Partnership commitments made by Cadbury? Mr Firestone: The Cocoa Partnership agreement we absolutely stand behind, and all the other existing agreements we stand behind. We have slightly different approaches, as there are in this area, and as we go forward we will look to see the best way to handle it. Q331 Lembit Öpik: This is going well, and the "bonus for ten" is, will you plan to extend Cadbury's Fair Trade commitments to Kraft and to other brands? Mr Firestone: We have existing commitments and arrangements with Rainforest Alliance and what we have to do is find a time when those could be synchronised. There are long-term supply agreements with both companies, so it is not a matter of switching one to the other, or vice-versa; it is a matter of making sure they are both equally responsive to concerns about the environment, about the workers in the field and about social development. Q332 Lembit Öpik: But you will not explicitly make a commitment to extend --- Mr Firestone: Cadbury to Kraft? Q333 Lembit Öpik: The methodology, yes, and expertise. Mr Firestone: No, because it is not to say it is not a good one, it is just we have our own existing commitments we want to honour. Q334 Lembit Öpik: I think that is a fair response. Moving on from that, what is the future of the Cadbury Foundation, which is a very important historical element of all of this and one of the reasons Cadbury has such a great reputation? Does Kraft explicitly intend to increase the financial contribution to it? I am assuming you will at least maintain it. Mr Firestone: On Friday I confirmed personally to the Foundation that we are confirming their funding. They fund in three year cycles and they had a pre-existing funding proposal for 2010, 2011, 2012. I personally informed them that we would continue that. Much of their work is similar to ours, particularly volunteerism. Kraft had a whole week last October of volunteerism, with over 10,000 employees volunteering, so the Cadbury Foundation is very much part of the on-going company. Q335 Lembit Öpik: You are committed to maintain it but not necessarily increase it? Mr Firestone: There was a proposal they had already developed and that was on the table and we approved that. As we go forward, I am sure there will be ways to --- Mr Doyle: That is exactly right. We had a pre-existing proposal on the table with Cadbury, pre the acquisition, for funding - three-quarters of a million pounds a year, so a significant sum of money - and clearly Kraft had no hesitation from my point of view in endorsing that three year programme. Q336 Lembit Öpik: So that is committed now? Mr Firestone: Yes. Q337 Lembit Öpik: Does Kraft intend to keep Cadbury's community investment goal of contributing 1% of its pre-tax profits for Community Investment year on year? This is where I think it is fair to ask the question "in perpetuity" because this has been one of the core values of Cadbury. Mr Firestone: Of 1%? Q338 Lembit Öpik: Yes, as I understand it. Perhaps your colleagues in Cadbury could confirm? Cadbury's community investment goal was to contribute 1% of pre-tax profits and I believe you actually achieved that at Cadbury. Mr Doyle: We exceeded that. It is a combination of money and valuation of people's time and commitment. Mr Firestone: The reason I paused is because I have seen different benchmarks, some of which are higher. What I can definitively commit to is that Cadbury's charitable activities, its community involvement and other things it has been doing for over a hundred years, will absolutely continue and I hope grow. As to the specific structure, that is something we have to look at. Mr Doyle: That Foundation money is a significant part of our total commitment. Q339 Lembit Öpik: Rather than try to catch up with individual numbers, you are explicitly saying you will honour the level of contribution which was committed to by Cadbury before? Mr Firestone: Yes, Sir, and financially as well, maintaining and continuing Cadbury's reputation for community support and involvement. Mr Doyle: Over 30% of our employees in
the Mr Firestone: We are in the Dow Jones Sustainability Index, which is a very difficult thing as you know, to get into because you have to prove it, and we have very similar approaches to social responsibility and we intend to share practices between the two companies. Q340 Lembit Öpik: I am hearing that you are confirming you will maintain the excellent voluntary programme as well? Mr Firestone: The Chairman asked for telegraphic answers - yes. Mr Bond: All these questions are good because what we have tried to do and have tried to set out today is to reduce the uncertainty, reduce the uncertainty for Somerdale, reduce the uncertainty for our colleagues in the current manufacturing sites and get on with what we have been doing over many, many years, which is to drive our business forward, to improve our productivity, to delight our consumers and to satisfy our customers. That is what we are in business to do, a hundred years ago today and in a hundred years' time, so we are really keen, and hopefully we have helped today to set out on the record reducing the uncertainty and getting on with running our business. Q341 Lembit Öpik: Does that also apply to the carbon emissions commitment, because Cadbury committed to a 50% absolute reduction by 2020? Does that remain as a goal or commitment? If you are not sure, do not guess. Mr Firestone: I will not. I was studying that and we have six specific quantitative goals for the Kraft family which are very similar but slightly different, so I do not want to guess. What I can commit to is very aggressive targets will remain for both companies. Q342 Lembit Öpik: Could I ask, Chairman, that you write to us? Mr Firestone: On carbon emissions? Q343 Lembit Öpik: Yes. Cadbury's carbon goal was very specific, an absolute reduction in net carbon emissions of 50% by 2020. Cadbury's produce an awful lot of CO2 because of the business they are in, so that is quite a lot of CO2 - 818,686 tonnes of it in 2007. Mr Bond: Mainly from the cows! Mr Firestone: I can say we are equally committed to carbon emissions. Cadbury has taken a very large percentage over a longer time, our targets are for a lower percentage over a shorter time, so again it is just a matter of different approaches to a similar issue. Q344 Lembit Öpik: Rather than having a long conversation now, I would be grateful if you could put it in the main response in correspondence afterwards. Mr Firestone: Yes, Sir. Q345 Lembit Öpik: Will you comply with Cadbury's objective to make absolute reductions in packaging and waste by 2010 and identify ways to tackle food waste as well? Bear in mind that is even in the event of growth Cadbury had committed to an absolute reduction in waste packaging - something I was very involved with in Procter and Gamble as well. Will you maintain that commitment? Mr Bond: Certainly from a Cadbury's point of view, our hesitancy is that we are six weeks into an acquisition. From what I have seen so far of the Kraft work on packaging reduction, for example, I think it is very good. Back to the point, together we can be even stronger and we can have more scale over our suppliers and can be more creative in some of our solutions. On your point, the legacy Cadbury business has made real progress on packaging reduction, and likewise the legacy Kraft business has as well. Q346 Lembit Öpik: Maybe you could include the answer in the correspondence? Mr Firestone: I would be delighted to send you a letter with the details because a lot of these are numbers we are still working through ourselves. Mr Doyle: What is clear to Trevor and me, whilst clearly through the period of the hostile takeover there was a whole variety of emotions, as you can imagine, and we are still very much in the "getting to know you" phase, but it is very clear that Kraft's objectives and Cadbury's objectives in the areas you are describing have far more similarities than differences. Lembit Öpik: Chairman, I will conclude by saying that we will take those as actual cast iron commitments, notwithstanding the letter which we discussed which will come later. Thank you. Q347 Chair: Gentlemen, I think you expected some pretty
tough questioning and you have had it.
The damage to Kraft's reputation in the Mr Firestone: I would reiterate that we are sorry to the people who were disappointed by the decision on Somerdale and express, on behalf of myself and the entire Kraft and Cadbury family, that we are committed to taking the actions that you have asked us to take in the future. We are committed to maintaining Cadbury's traditions and, more importantly, to carrying those in the future in a way that is to the benefit of our colleagues, to the scientists, to the employees and the management. We are very serious about that and we understand that in acquiring a British icon we also accept an enormous responsibility for how we preserve its heritage while keeping it competitive in the future. I look forward not only to discussing that but, more importantly, having tangible concrete evidence of that going forward. I thank you for giving us the chance to speak with you today. Q348 Chair: Your bid has been a sensitive one, it has also triggered a whole review of mergers policy, and I think it is only fair to say I expect that this Committee in the next Parliament will be as interested in this matter and in this particular acquisition as it has been today. Gentlemen, thank you very much indeed. Mr Firestone: Thank you. |