Cadbury: a period of transition

Related tags Cadbury plc Cadbury uk

Tough trading conditions and the impact of several significant
acquisitions continue to take their toll on results at UK-based
confectionery and beverage group Cadbury Schweppes.

Tough trading conditions and the impact of several significant acquisitions continue to take their toll on results at UK-based confectionery and beverage group Cadbury Schweppes​.

The company yesterday issued a trading statement in advance of its first half results, due to be announced in July, and stressed that "2003 will be a transitional year for the business as we focus on building a stronger and more sustainable platform for future growth"​.

Todd Stitzer, Cadbury Schweppes' CEO said: "Overall revenue and earnings in our base business have made reasonable progress in constant currency against a background of weak trading conditions in the first half. This growth in earnings has been broadly offset by the dilutive impact of acquisitions."

The principal acquisition during the last six months was that of Adams, the US-based sugar confectionery group which Cadbury Schweppes bought for $4.2 billion (€3.6bn) in December.

The newly acquired business is performing in line with expectations, the company said. "Trading in the North American gum market remains highly competitive, but the business continues to make excellent progress in the Latin American and Asia Pacific gum markets, and with the Halls brand around the world."

But the acquisition has also increased restructuring charges for the year, although much of the cost will fall in the second half of the year. The reorganisation of the company's management structure has also led to higher costs.

Excluding Adams, Cadbury said that its confectionery businesses in Europe, the Middle East and Africa performed well during the first half, led by Cadbury Trebor Bassett which continued to benefit from recent restructuring and investment.

Sales at that division - which specialises in sugar confectionery - were driven by a strong Easter performance and further market share gains. Elsewhere in the region, emerging market operations in Africa, particularly South Africa and Egypt, performed well, but the performance at Dandy - the Danish gum group - was affected by market and competitive conditions in Russia.

On the beverage side, the European business got off to a slow start in competitive markets. In Germany, the Apollinaris & Schweppes business outperformed the weak soft drinks market, the company claimed, adding that profits at the unit were being impacted by increased investment in marketing and new capacity.

In the Americas, beverage sales were impacted by low consumer demand for soft drinks caused by poor weather and the weakening economy. The Dr Pepper brand performed in line with other core carbonated brands, the company said, although its performance was impacted by a number of new product launches in the cola market and by weak fountain sales.

The company said that changes to the distribution arrangements for 7 UP in the US had not had any unexpected impact on performance, while the Mexican business continued to produce good results. "Overall, we expect profits from the Americas beverages region to be modestly ahead in the first half,"​ the statement said.

On the confectionery side, the Americas business (again excluding Adams) had a mixed start to the year, with an excellent recovery in Argentina masked by continued challenging trading conditions in Canada.

Profits in the Asia Pacific region in the first half are expected to be lower year-on-year due to weaker results from the company's businesses in Australia.

"Overall, we anticipate that earnings for the first half including acquisitions will be broadly level with 2002 in constant currency terms,"​ the company said. "The net effect of currency movements on earnings is expected to be around 5 per cent adverse."

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