Restructuring costs hit Cadbury Schweppes
confectionery company Cadbury Schweppes has reported a 33 per cent
drop in its net income, largely on the back of restructuring costs
and tough market conditions.
The company reported that its net profit for 2003 slid to £366 million (€550m), down from £548 million in the previous year. Sales increased to £6.44 billion, up from £5.30 billion in 2002.
CadburySchweppes also pointed out that the underlying pretax profit - which omits restructuring and other costs - showed less of a decline, with profits slipping from £935 million in 2002 to £922 million in 2003.
The company said in its trading statement that in 2003 it had undertaken a significant reorganisation of its management and operational structure, began to integrate Adams and implement its Fuel for Growth cost initiative, all against the backdrop of difficult trading conditions in a number of our key markets.
Indeed some of the company's restructuring efforts were starting to pay dividends by the third quarter of 2003, with a broad based improvement in performance within all its key businesses having a stronger finish to the year. In particular the US carbonates business strengthened through the second half. The company also pointed out that despite the hot summer in Europe, Cadbury Trebor Bassett delivered record sales, profit and market share following a good Christmas.
The transition of Adams into the Cadbury Schweppes portfolio has also raised its costs significantly in 2003, although the company did comment that there had not been any significant problems. The company said that integration benefits were now also starting to filter through.
The year 2003 also saw the instigation of the company's four-year Fuel for Growth cost initiative. Significant activities included the integration of the company's beverage businesses in North America; commercial and back office savings arising from the integration of Adams; and confectionery supply chain optimisation in Europe.
"During this transitional year, we continued to maintain tight management of our cash resources, generating free cash flow of £172 million," the company's financial statement said. "This resulted in year-end borrowings of £4.2 billion, an increase of £2.4 billion in the year, having paid £2.8 billion for acquisitions, most notably Adams."
Looking to the year aheadTodd Stitzer, CEO of Cadbury Schweppes, said that last year's restructuring costs would hopefully reap greater benefits for the year ahead: "The final quarter of 2003 saw a broad based improvement in performance and we have seen an encouraging start to 2004. The Adams' integration and Fuel for Growth cost reduction initiatives are being executed to plan and are expected to deliver significant benefits in 2004 and beyond.
"We expect to deliver 2004 financial performance within our goal ranges of 3 per cent - 5 per cent net base sales value growth and 50 - 75 basis points of operating margin increase annually."
In American the beverage division was hit hard by bad weather, contract issues and a second half weak performance from its non-carbonates portfolio. However on the confectionery sides, things were greatly helped along by the consolidation of Adams into the portfolio, and in turn almost tripling sales to £871 million.
For the EMEA region, business was reported as good as a result of the hottest summer temperatures on record in Western Europe. The hot weather impacted volumes, particularly the UK, Ireland and France where sales grew by an estimated £15 million at least.
