Renamed Cadbury beverage arm faces brighter future

By Neil Merrett

- Last updated on GMT

Related tags Cadbury schweppes Soft drink Dr pepper snapple group

Cadbury Schweppes says that its American Beverages division is
defying the increasingly challenging conditions in the global
carbonated soft drinks market by performing above the company's
expectations for the year.

The business, which is to be de-merged into a separate entity called the Dr Pepper Snapple Group, is expected to post like-for-like sales growth of between four to five per cent for the fiscal 2007, the company said.

The strong performance comes despite increasing difficulties for carbonated beverage manufacturers from high ingredient and packaging costs, as well as changing consumer demand for 'healthier' drinks.

However, the company said that the US soft drinks market had improved over the last few months, allowing the group to increase its share in carbonated soft drink sales.

An extended range of non-carbonted tea-based beverages under the Snapple brand has also contributed to the increased revenues.

There were some troubles for the company during 2007, with the "disappointing" launch of its Accelerade sports drink label resulting in an estimated loss of about £30m for the year, Cadbury Schweppes said.

Although Cadbury Schweppes said it expected commodity costs for the division to increase by a further five to six per cent in 2008, the company claimed it was making "significant" progress in reducing costs for the standalone beverage arm.

Cadbury Schweppes announced in October that it planned to demerge its €10bn beverage arm from its confectionary business by listing the unit as a separate company on the New York Stock Exchange.

The group had originally intended to sell off the division, estimated to be worth about £7bn (€10bn), but will now separately list the operations on the NYSE instead.

The company's management wants to focus on the high growth confectionary business.

The company opted for the listing over a sale, citing unfavourable debt market conditions that might keep potential suitors from offering a premium price for the drinks division, which owns brands such as Snapple, Dr Pepper, Seven UP, and Mott's.

To ensure greater profitability as a stand-alone venture, Cadbury Schweppes announced in October that it would be cutting 470 jobs related to beverage production.

The staff cuts form part of a proposed drive by the company to make £35m (€50m) worth of annual costs savings by 2008, an aim it claims to be on target to achieve.

The total cost of the restructuring measures will also be £35m (€50m), the company said.

The changes are the latest in a long line of shake-ups to the Cadbury Schweppes beverage production over the last few years.

Between 2003 and 2005, the company began merging its separate soft drinks brands into one division.

Over the last two years, the group has also taken greater control of third party bottlers as part of plans to become a more fully integrated beverage manufacturer and distributor.

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