Good sales for Cadbury Schweppes after forward buy-up

Related tags Cadbury schweppes United kingdom Soft drink Cadbury plc

British confectionery and soft drinks company Cadbury Schweppes
yesterday revelled in its best performance for a decade, with
half-year results flattered by a trade buy-up of extra stocks of
chocolate in the UK, reports Lorraine Heller.

Group sales surged forwards by 6 per cent in the first half of 2005, to £3.1bn (€4.5bn), delivering an 8.5 per cent increase in operating profits, to £422m (€508m).

The build-up of stocks by customers in the UK was prompted by the prospective installation of the company's new IT system, PROBE, the company said.

The system, which was introduced this month throughout confectionery divisions in the UK, spans business operations on all levels, from back office through to customer deliveries.

Forward buy-ups were recommended by the company as a precautionary move in the unlikely event of a glitch in the new system.

As well as boosting sales growth, the buy-up had a negative impact on the company's cashflow. Trade receivables, or unpaid invoices, surged forwards by more than 12 per cent since December across the entire company, in growth that should be more than reversed by year-end, the company said.

A surge in sales caused by forward buying would normally lead to a more than equivalent reduction in sales next time as customers take longer to restock.

Setting aside the impact of the IT roll-out, Cadbury looks to be holding its own in the difficult chocolate and soft drinks markets, despite falling somewhat short of its own, ambitious targets.

In October 2003, the company unveiled its four-year "Fuel for Growth"​ plan, which outlined its target of achieving annual sales growth of 3-5 per cent (excluding the impact of acquisitions at constant currency) and an annual increase in operating margins of 50-70 basis points a year.

However, increased investment costs and higher distribution and oil-related costs resulted in operating margins being up this half by only 10 basis points, excluding currency impact, despite £40m (€58m) of cost-savings achieved through the "Fuel for Growth"​ initiative.

Cadbury Schweppes aims to cut costs by a total of around £400m (€586m) by 2007.

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