UK: Cadbury sees H1 in line with expectations
UK confectionery and soft drinks giant Cadbury Schweppes has reported profits and earnings for its H1 2002, ended 16 June, in line in expectations.
Underlying profits before tax were up 10% to £386m and underlying earnings per share (EPS) rose by 12% to 12.9p or 13% excluding the impact of movements in exchange rates.
Sales of £2.35bn were 7% higher than last year, representing an increase of 9% at constant exchange rates. Like-for-like base business sales grew 3% and acquisitions, net of disposals, contributed 6% revenue growth.
CEO John Sunderland said: "Efficiency has played a greater role in the delivery of these interim results with particularly strong gains from reduced supply chain costs across the business. We also benefited from strong, profitable volume growth from our main developed market confectionery businesses as well as good growth in higher margin product categories such as chewing gum in France.
2002 2001 Change
£ m £m %
Sales 2,354 2,200 + 7
Underlying Operating Profit* 429 400 + 7
Underlying Profit Before Tax* 386 351 + 10
Underlying EPS* - pence 12.9 11.5 + 12
Dividends per share - pence 3.5 3.35 + 4.5
* Before restructuring costs, goodwill amortisation and disposal gains/losses.
† See note 1a to the accounts
Since the start of 2002, the firm has acquired the branded chewing gum business of Dandy, a leading gum business in Northern Europe and Russia, and a 60% shareholding in Kent, the leading sugar confectionery business in Turkey. It has also bought Squirt, a significant carbonated soft drink (CSD) brand in Mexico and Nantucket Nectars, a premium juice and juice drink brand in the US.
"All acquisitions made last year, most significantly La Casera in Spain and Orangina in France, are performing in line with or ahead of expectations," said Sunderland.
Sales rose by 6% to £852m and underlying trading profit by 8% to £248m. Excluding the impact of exchange rate movements and acquisitions, sales and underlying trading profit rose by 1% and 8% respectively. The growth was driven by a significant reduction in supply chain costs across the region. Total volume was up 4%, all from acquisitions. A challenging Q2 led to like-for-like volumes down 0.6% in the H1.
Dr Pepper volumes are beginning to benefit from new and more aggressive marketing aimed at both core users and traditionally low per capita consumers. Red Fusion was launched in early July, the first new product in the Dr Pepper stable since Diet Dr Pepper was introduced in 1992.
In still drinks, while overall premium beverage volumes were marginally down for the H1, core Snapple case volumes were up 2%. Clamato continues to perform well and Hawaiian Punch growth through the Mott's system remains at a high level driven both by the core flavours and the launch of a new variant, Green Berry Rush.
Sales in the Europe Beverages region rose by 51% to £324m and trading profit by 48% to £50m. Adjusting for the impact of exchange rates, acquisitions and disposals, sales grew by 2% and underlying trading profit by 13%.
In France good growth was seen in fruit carbonates and still drinks, the latter led by children's brand Oasis. Orangina performed well with branded volumes ahead during the H1.
In Spain, the on-going efficiency programme drove a healthy increase in profits and the integration of the La Casera business is on schedule. Mexico had a very strong half with a 13% sales increase, led by the water brand, Penafiel, and the relaunch of Orange Crush.
Sales increased by 2% to £654mn, excluding exchange rate movements. Underlying trading profit rose by 13% to £96m, up 14% excluding exchange.
The company said: "We saw strong performances from our core markets, but a weaker performance from some of our smaller, less profitable markets, mainly Germany and Spain.
"Results at Cadbury Trebor Bassett were excellent, with good growth in both volume and profit during the H1. We have made good share gains during 2002, driven by strong innovation in our chocolate range and increasing distribution and availability. Recent innovation includes Brunch Bar, launched in mid 2001, which is the UK's second best selling cereal bar and Dream, our adult white chocolate product, which has significantly outsold every other new product in the confectionery sector this year.
"In France, our development of Hollywood gum through the growing sugar-free sector continues to bear fruit with our share of the sugar-free sector now at 32%. A more profitable volume mix and efficiency benefits contributed to a healthy overall profits result. Poland had a more difficult Q2 as the economy weakened but share gains were made in chocolate and profits benefited from a favourable product mix and reduced costs. Russia broke even in the H1 with improvements in product mix and raw material costs."
Sales fell by 16% to £107m whilst underlying trading profit was down by £5m. Good performances from Canada and the US were masked by the economic turmoil in Argentina.
After a difficult 2001, Canadian core volumes were ahead by 5% with share gains in chocolate although overall sales were marginally lower. Performance at Jaret in the US was strong in part due to the successful launch of Hawaiian Punch candy. At Stani in Argentina, profits were significantly lower due to significantly reduced volumes (40%) and unrecovered raw material increases.
Sales in the region were up 7% to £290m but underlying trading profit was down 2% to £38m.
Australian and New Zealand confectionery businesses grew volumes 4% during the half. In Australia market share gains were made in both the grocery and impulse channels. The Trebor 24-7 range was launched in Australia in the Q2 and has been well received. Beverages in Australia grew volumes by 3% despite unseasonally poor summer weather in Victoria, one of its key markets. Market share gains were seen in both grocery and impulse. The integration of the acquisitions made in 2000/2001 has been successfully completed.
Africa, India and Middle East
Sales in the region were down 10% to £123m while underlying trading profits increased 4% to £14m. Excluding the impact of exchange and acquisitions, sales and trading profit grew by 9% and 25% respectively.
The businesses in the Africa, India and Middle East had a good H1. In India 40,000 new outlets were added and Chocki was launched successfully. Double-digit sales and operating profit growth was achieved in South Africa and a strong performance noted in Egypt, driven by growth in chocolate.
Sunderland concluded: "The business performed soundly in the H1 and we are on track to meet our earnings and cash flow targets for the FY.
"We expect volumes for our US beverage business to be broadly flat for 2002 in spite of any initial disruption associated with the transfer of certain brands, most notably 7 UP, into the independent bottling system (IBS).
"We are also confident that the growth of key brands such as Dr Pepper coupled with further significant cost reduction opportunities in the supply chain will enable us to grow profits in the region in line with expectations over the long term.
"Our developed market confectionery operations have been significantly restructured in recent years, with efficiency gains being reinvested in accelerating the rate of top line growth. The H1 results benefited strongly from the strengthening performance from these markets and we expect this to continue into the foreseeable future. Emerging markets remain a key long term opportunity for the group and we will continue to build our presence in existing and new markets.
"Our acquisitions programme in recent years has contributed consistently to earnings growth and value creation and we are confident of securing further value creating deals".
The board declared an interim dividend of 3.5p, up from 3.35p in 2001. This will be paid on 18 October 2002 to Ordinary Shareholders on the Register at the close of business on 26 July 2002.
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