Cadbury's reports decline in operating profit

By Karen Willmer

- Last updated on GMT

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Cadbury Schweppes today reported an operating profit decline
of 6 per cent to £180m in the first-half of the year,
particularly due to high input costs and restructuring costs.

The company is reorganising itself to focus on emerging markets and key brands and segments.

Revenues were £2.33bn (€3.45bn) compared to £2.29bn (€3.39bn) in the same period last year.

Double-digit growth in gum and emerging markets meant underlying revenue was up six per cent, the company said.

Cadbury announced in June a complete restructuring in order to streamline its operations and focus on profitable brands and markets.

The company is also in the midst of selling its US beverages business.

Of a total £53m spent on restructuring during this half, the June restructuring cost Cadbury £34m and the separation of the Americas beverages business has cost £4m.

The company also said underlying profit was down because of the launch of the Trident gum brand in the UK and the £1m fine for the salmonella outbreak in 2006.

The temporary closure of the Sheffield factory due to flooding in the UK will affect revenues, although the majority should be covered by insurance, Cadbury said.

Production has resumed on some lines, with more lines increasing over the coming weeks, the company said.

Cadbury spent £340m on three acquisitions during this first half in order to strengthen its business in various markets.

These included Intergum in Turkey, Romania's second largest confectionery company Kandia-Excelent, and Sansei Foods in Japan.

The company said it expects to deliver a return of £250m from the non-core disposal programme by the end of 2007.

Cadbury reorganised its businesses into four main core regions from July 1; Britain, Ireland, Middle East and Africa (BIMA), Europe, Americas, and Asia Pacific.

Within Europe, Middle East and Africa (EMEA), first half revenue increased one per cent to £1.11bn on 2006, mainly due to the launch of Trident within the UK in February.

Strong growth in gum across Europe strengthened revenues, and all confectionery categories within the UK were ahead by 5 per cent, Cadbury said.

However, operating profit was down by 25 per cent within the region, due to a £10m investment in the UK gum launch and £10m costs due to the phasing of results from Cadbury Nigeria.

The operating margin was 8.7 per cent for this half compared to 11.7 per cent in the same half in 2006.

Within the Americas business operating margin was 17.7 per cent compared to 14.4 per cent in 2006, with revenues up 2 per cent to £651

m. Revenue growth was 12 per cent for the half, with 9 per cent in the North American developed markets, and 15 per cent in the Latin America emerging markets, Cadbury said.

The 6 per cent growth in the US gum market helped Cadbury's market share reach 35 per cent compared to 27 per cent in 2003.

Revenues within Asia Pacific region were up £10m to £563m however operating margins were 8.2 per cent compared to 9.4 per cent in the same half 2006.

Cadbury said revenues in India were up by 20 per cent, particularly for Cadbury Eclairs.

Revenues were ahead by 2 per cent in South East Asia, and revenues were down 6 per cent in Thailand due to the political uncertainty.

Revenues were 18 per cent lower in China due to withdrawing from 180 of the 200 operating cities during this half through the brand and market focus.

However, the company announced that it may decide to split its Americas beverages business as opposed to selling it, if the the debt market failed to stabilise.

Cadbury said it will continue to make investments during 2007 to focus on its key markets, including the UK gum business and the expansion of Stride in the US.

"We expect continued good revenue growth in the second half, while margins will be impacted by the combination of growth investment and higher input costs," said chief executive officer Todd Stitzer.

However, the company said the high input costs, particularly with dairy products around the world, will mean margins will not improve throughout 2007.

Cadbury aims for mid-teens margins by 2011, and expects savings from the realignment to be seen from 2008.

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