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Cadbury contamination proves costly

By Catherine Boal , 02-Aug-2006

A UK product recall due to Salmonella contamination could cost £20m (€29.3m) and perhaps more, Cadbury Schweppes said yesterday.

The company reported a 14 per cent growth in underlying profit to £278m (€407.3m) for the first half of the year but warned that the full cost of its UK product recall had yet to be tallied.

The financial report provides an insight into the effect a recall and food safety scare may have on a company's bottom line.

Chief executive Todd Stitzer said: "We expect to deliver revenue growth towards the upper end of our goal range for the full year but are still monitoring the trading impact of the UK product recall."

On 23 June the confectionery giant was forced to remove one million of its products from shelves in the UK after traces of salmonella was discovered in the chocolate.

The contamination was traced to a leaking waste water pipe which had dripped bacteria into the chocolate crumb used to make a variety of chocolate bars. The Health Protection Agency subsequently found a direct link between a salmonella outbreak affecting 37 people and the Cadbury chocolate.

Now loss of consumer confidence in the brand and costs arising from an overhaul of safety measures at the Marlbrook factory are expected to contribute to losses incurred from the scare.

The company withdrew seven product lines in the UK and two in Ireland after the contamination was revealed to the public. The lines represent about three per cent of sales in the UK and about half a per cent of the group's total sales.

In the first six months of this year Cadbury has already spent about £13m on the recall. The company expects total net costs to be in the range of £20m, of which the company expects to recover £6m from insurers, according to the financial report.

About half of the estimated total cost will be due to the recall, with the rest related to changes at its manufacturing plants and to media spending.

Cadbury sales in the UK market fell by 14 per cent during the first six months of the year. The company noted that its share of the UK market fell by 1.1 per cent during the period.

Performance was further affected by the hot weather in the UK market, where where confectionary sales by all manufacturers fell by seven per cent year-on-year, the company said.

In its financial report, the company stated: "We have apologised to our consumers, customers and colleagues for any concerns caused and are implementing changes to our UK manufacturing and quality assurance processes so that this cannot happen again."

The Food Standards Agency yesterday informed consumers that Cadbury would be restocking five of the previously recalled brands in stores.

And, in a further effort to recoup expenses, the company will introduce new products such as dark chocolate Flake and Cadbury Melts to the UK market in the next year.

In the meantime, the global beverage and confectionery manufacturer found business was buoyed by other sectors.

The company, which produces brands such as Halls and Green & Blacks, reported confectionery revenue growth of 3.4 per cent and a nine per cent business growth in emerging markets such as Latin America and Asia Pacific.

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