Cadbury Schweppes, the UK-based confectionery and soft drinks company, has today reported a 7 per cent rise in sales of the year to 29 December 2002 to £5.3 billion (€7.8bn) but warned that results from the current financial year would be impacted by a reshuffle at its North American businesses.
Underlying operating profit was up 5 per cent to just over £1 billion, while underlying pre-tax profit was ahead 6 per cent to £935 million.
John Sunderland, CEO of Cadbury Schweppes, said: "2002 was a good year for Cadbury Schweppes. It marked the sixth successive year in which we have exceeded our targets for underlying earnings per share growth in constant currency and free cash flow delivering 11 per cent and £315 million respectively. Underlying operating profit passed the £1 billion mark for the first time.
"The most significant feature of the year has been the high levels of profitable volume growth achieved by our major confectionery businesses. Acquisitions continued to strengthen our beverage and confectionery businesses and the impending purchase of [US sugar confectionery group] Adams will make Cadbury Schweppes the world's leading confectionery company.
"To further focus the business on growth and value creation we have today announced a comprehensive management reorganisation including the amalgamation of our North American beverage businesses. For all these reasons, 2003 will be a year of transition as we consolidate these various developments. This will have some impact on our achievement against our targets for this year, but will provide an excellent platform for future revenue and profit growth."
The star performer during the year was Cadbury's confectionery business, which lifted volumes by 3 per cent worldwide. Within the confectionery arm, the Trebor Basset sugar confectionery unit and the Australian operations performed particularly well, increasing volumes by 6 per cent and 7 per cent respectively.
Operating profit growth of 7 per cent in the confectionery arm was achieved despite increased marketing investment and shortfalls in the Americas and China of around £20 million, Sunderland said.
The beverages stream in North America was affected by changes to the distribution arrangements within Dr Pepper/Seven Up (DPSU), although this was offset by growth in sales of still brands and improving performances from Dr Pepper and Snapple. Good results in the soft drinks business in Europe reflected the integration of acquisitions and efficiency gains, Sunderland said. The most significant contributors to growth from acquisitions were Orangina in France, Kent in Turkey and Squirt in Mexico.
"Acquisitions completed in 2002 continued to strengthen our positions in several markets. Our beverage operations were bolstered by the acquisitions of Apollinaris & Schweppes in Germany, Nantucket Nectars in the US and Squirt in Mexico. In confectionery, we bought out the minority in Cadbury India, acquired Kent, a leading sugar confectionery business in Turkey and acquired Dandy, the number two gum business in Europe."
The good performance in 2002 was due to the ongoing strategic development of Cadbury Schweppes, said Sunderland, a strategy which culminated with the proposed acquisition of Adams. "Over the last seven years, Cadbury Schweppes' strategy has been to build a series of regionally robust and sustainable businesses in its core categories of confectionery and beverages. In confectionery, we have evolved from a reliance on chocolate to a full portfolio of confectionery products encompassing chocolate, sugar, medicated confectionery and chewing gum. Our proposed acquisition of Adams takes us into higher growth categories and markets and will bring significant long-term value creation opportunities."
Commenting on the organisational changes, Sunderland said that they would "bring significant benefits, delayering the group, taking costs out of the centre and regions and speeding up decision making". The changes will come into force on 24 February, and will involve the reduction of the number of US operating units from 10 to five, including Adams: Americas Beverages, Americas Confectionery, EMEA Confectionery (Europe, Middle East and Africa), Europe Beverages and Asia Pacific.
"To date our North America beverage businesses - DPSU, Mott's and Snapple - have operated separately. It is our intention to amalgamate these businesses under a single regional president, fully leveraging our strong brands, innovation capabilities, broad and diverse routes to market and scale with customers."
Sunderland said that these changes in the US, in particular at DPSU where franchise transfers are expected to affect volume sales, would impact profits at the Americas Beverages unit. "By contrast the momentum behind our core confectionery business in total should produce a further strong performance, enhanced by recovery in our Chinese and Canadian units," Sunderland added.
North America Beverage sales rose by 3 per cent to £1.8 billion and operating profits by 1 per cent to £548 million. Sales in the Europe Beverages region grew by a much more impressive 39 per cent and operating profits by 54 per cent, helped by acquisitions - Orangina in France, La Casera in Spain and Squirt in Mexico.
In the Europe Confectionery unit, sales increased by 7 per cent and operating profits by 17 per cent, with strong results from key markets in the UK, France, Poland and Russia and recovery in smaller markets, notably Spain. The Americas Confectionery unit, on the other hand, posted disappointing results - a 54 per cent drop in operating profits and a 19 per cent decrease in sales - affected by the devaluation of the Argentine peso and by a poor performance in Canada.
In the Asia Pacific region, sales grew by 3 per cent while operating profits were 9 per cent lower. Positive exchange rate movements contributed 1 per cent to sales and operating profits. A record year for the Australian and New Zealand confectionery businesses was diluted by weaker performances from the chocolate business in China and food and beverages business in Australia.
Sales and operating profits in the Africa, India and Middle East region increased by 8 per cent and 27 per cent respectively.