Cadbury Schweppes back on track after reshuffle

- Last updated on GMT

Related tags: Cent, Cadbury plc, Soft drink

British confectionery and soft drinks group Cadbury Schweppes is
back on the path to growth after the acquisition of confectionery
group Adams and a complete overhaul of its US beverage business.
Cost reductions, investment in confectionery innovation and a
strong performance in the difficult US soft drinks market all
contributed to a major bounce back in 2004, writes Chris
Jones.

A combination of £75 million in cost savings generated by the ongoing integration of the Adams business and the North American beverage revamp and an increase in investment in marketing and NPD (£740 million, some 5 per cent higher than 2003, or 11 per cent at constant exchange rates) contributed to Cadbury's good performance in 2004.

With 80 per cent of its business coming from outside the UK, exchange rates inevitably played a part in reducing sales, but revenues were nonetheless some 5 per cent higher than in 2003 at £6.7 billion (9 per cent higher at constant exchange rates). Analysts Goldman Sachs​ had forecast sales of £6.58 billion.

The Americas beverage business performed well, especially in light of the increasingly difficult conditions which led market leader Coca-Cola, and to a lesser extent number two palyer Pepsi, to post sharply reduced sales.

Although sales of £1.69 billion were down from the £1.8 billion in 2003, the reduction was entirely due to exchange rates, with underlying sales growing 2 per cent, led by Dr Pepper (whose volumes grew 3 per cent) and the various diet brands (whose volumes rose 19 per cent on the back of a continued health push in the US).

Poor summer weather in Europe meant that the beverages operations there fared less well, with sales down from £692 million to £653 million, with the company losing share in all its core markets (France, Spain, Germany).

However, the cooler summer - and a strong Christmas - helped boost European confectionery sales during the year (rising 6 per cent to £2.25 billion). New product introductions in the French and Spanish gum markets were particularly successful.

Innovation also lifted sales in the American confectionery business, with the top four brands there (Trident, Halls, Dentyne and Bubbas) growing sales by 13 per cent over the year. Total confectionery sales in the Americas were up by 25 per cent to £1.09 billion.

Although Cadbury's performance exceeded Goldman Sachs analysts' expectations, the company sounded a note of caution for 2005, highlighting the ongoing problems in the US soft drinks sector (badly affected by the backlash against foods perceived to be 'bad' for health) and an expected onslaught from arch rival Nestlé in the core UK market after Cadbury's relaunched Dairy Milk took over from Kit-Kat as the nation's top-selling countline.

Yet with the company's Fuel for Growth restructuring plan still only in its first year (it is due to run until 2007) and the company's obvious commitment to investment in brand support and new product development (sales from new products are set to rise from 6 per cent of total to some 15 per cent by 2007), the analysts remain confident that Cadbury's management has what it takes to continue the good work.

The impulse nature of the confectionery market should also protect Cadbury from ongoing pressure on margins in the price-conscious UK market (where convenience continues to demand a premium price).

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