Cadbury profits melting
in the first half of the year, but the increasing cost of
restructuring its business took a hefty toll on profits.
The increasing costs of the company's rapid expansion have taken their toll on profits at UK-based confectionery and soft drinks group Cadbury Schweppes in the first half.
While sales rose by 15 per cent to £2.7 billion (€3.8bn) as a result of acquisitions such as Adams, the US sugar confectionery group, the restructuring costs and additional goodwill charges related to the acquired businesses meant that operating profits dropped 5 per cent to £366 million and pre-tax profits slid by a worrying 16 per cent to £294 million.
The company did its best to put a positive spin on the first half figures, with CEO Todd Stitzer calling them "reasonable" and "in line with expectations against a background of weak trading conditions in many markets."
While the cost of the confectionery acquisitions was at least partially offset by increased sales, the restructuring costs at the soft drinks division in the US were compounded by a slow down in sales there, due to increased competition from rivals Coca-Cola and PepsiCo and the loss of a bottling contract with the Pepsi Bottling Group which cut 7-Up sales by 16 per cent during the period.
Dr Pepper and 7-Up are Cadbury's main soft drink brands in the US, and both were affected by the launch of a number of new drinks by their two major rivals. Beverage sales in the US grew by 1 per cent on a like-for-like basis with Cadbury citing poor weather and weak demand as the reasons - although PepsiCo managed a 6 per cent increase in North American beverage sales during the same period and with the same conditions.
European beverage sales would have fallen by 5 per cent if not for the impact of the acquisition of Apollinaris mineral water in Germany, with declines in all of the group's main markets - France, Germany and Spain - during the period, with the Orangina integration in France causing particular problems.
Confectionery acquisitions in Europe - Dandy, Kent and the European business of Adams - boosted sales by 21 per cent to £911 million, although growth before the impact of the new businesses was a solid 6 per cent. The UK-based sugar confectionery arm Cadbury Trebor Basset had a particularly good half with sales ahead by 8 per cent.
The company also performed well in a weak French market thanks to several new gum launches, while the Kent business in Turkey produced sound results, although its important export business was hit by the strengthening of the Turkish lira against the dollar. The Dandy business had a difficult half, however, primarily due to trading conditions in Russia.
Adams, meanwhile, boosted Americas confectionery sales by £178 million to £275 million, but also masked an operating profit decline caused by continued shortfalls in the group's Canadian operations.
Cadbury Schweppes has always stressed that 2003 would be a transitional year for the company after its rapid expansion of the previous few years. With new distribution arrangements for 7-Up to put in place, the Adams business to be integrated and a new organisational structure to bed down, there is plenty of work for the group to do - but it will need to show some significant improvement in the coming years to silence those critics who argued that Adams in particular was a step too far for the ambitious group.
