Cadbury Schweppes to focus on confectionery?

By Lorraine Heller

- Last updated on GMT

Related tags Cadbury schweppes Soft drinks Soft drink Coca-cola

British confectionery and soft drinks giant Cadbury Schweppes may
be turning its focus to the confectionery market, if recent
speculation on a decision to sell its European soft drinks business
is fulfilled.

Tough market conditions have put pressure on the company's European soft drinks division, with like-for-like first half sales down one per cent.

Cadbury Schweppes may now be going "much more down a confectionery route"​, according to an analyst at Pereire Tod, who said the company would probably look to sell its European portfolio, which includes the Orangina, Oasis and Schweppes brands.

The firm recently reported a 6 per cent increase in sales for the first half of 2005, to £3.1bn (€4.5bn), delivering an 8.5 per cent increase in operating profits, to £422m (€508m).

However, this surge was boosted by a forward buy-up of stocks in the UK, prompted by the prospective installation of the company's new IT system, PROBE.

The stock build-up was recommended by the company as a precautionary move, and would normally lead to a more than equivalent reduction in sales next time as customers take longer to restock.

Cadbury Schweppes has struggled to raise profitability since its ambitious acquisitions in recent years, setting itself cost-cutting targets under a four-year "Fuel for Growth"​ plan, which it is failing to meet.

Shedding the problematic soft drinks division would be one way for the company to get back on track.

Analysts believe private equity is the most obvious route for a sale because there is plenty of money kicking around and it should not raise the competition concerns that a deal with Coca-Cola, or to a lesser extent PepsiCo, might - easily Europe's top two soft drinks firms.

The division lost market share across its key markets of France, Spain and Germany in 2004. Sales also declined, though margins were saved by cost savings through the firm's Fuel for Growth scheme, and a more efficient supply chain in France and Spain.

The group described the state of the division in the first half of 2005 as "satisfactory".

This contrasts with the US where Cadbury Schweppes announced that its Dr. Pepper and diet brands had helped the group out-perform an albeit struggling carbonated soft drinks market.

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