In line with its commitment to issue regular trading updates ahead of its interim and preliminary results, Cadbury Schweppes plc today released the following comments on trading performance in 2000. The 2000 preliminary results will be announced on 14 February 2001.
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Trading Performance Highlights
Trading in the second half of the year has been in line with our expectations and we are comfortable with market forecasts.
In the US, Dr Pepper/Seven Up (DPSU) volumes are expected to outperform the US carbonated soft drinks market where, this year, growth has been impacted by significantly higher than inflation increases in concentrate and retail prices. Mott’s is expected to show a double digit volume increase in 2000, with a significant contribution from Hawaiian Punch. The DPSU Bottling Group joint venture is having a successful year, benefiting both from good volume growth and efficiency gains.
The acquisition of Snapple Beverage Group was completed on 25th October, 2000. The first phase of business integration has been announced. Profits from the nine weeks trading to the end of 2000 will be more than offset by charges relating to restructuring, interest and amortised goodwill.
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By GlobalDataEuropean Beverages is enjoying an excellent year and is expected to report strong profits growth. Margins have benefited from a focus on higher margin products and from the restructuring initiatives announced last year in Spain.
In the UK confectionery market, conditions have remained sluggish and discount levels high. However, in the run up to the important Christmas season, our business is performing satisfactorily.
In Australia, our second largest confectionery market, we have seen strong volume and profit growth. We benefited specifically from the successful 2000 Olympics where Cadbury was an official supplier. Australian beverages is having a solid year although poor weather in the early part of the year impacted volumes.
Other confectionery markets are performing in line with expectations except South Africa which continues to be affected by the economic downturn. The Russian business is expected to report reduced losses due to the combination of strong volume growth and lower costs. Our Chinese business is on target to break even this year.
Growth
Growth is a clear requirement to meet our financial targets and the business is focused on investing to drive profitable growth both organically and by acquisition.
Consequently, we have sought to utilise our substantial cash resources to acquire value creating and higher growth assets. Acquisitions made during 1999, notably Hawaiian Punch, are expected to make a strong contribution to earnings in 2000.
Acquisitions made during 2000 include Hollywood in France, Snapple and Mauna La’i in the US, the bottling assets of Pepsi Lion Nathan in Australia and the Wuxi Leaf gum business in China. The integration of these business is running to plan and they are expected to be earnings positive in 2001 before restructuring charges and amortised goodwill.
On 20th October, we acquired the 45% outstanding minority in Cadbury Schweppes South Africa. As part of the restructuring of the business, the sale of our 14.6% stake in Amalgamated Beverage Industries will give rise to exceptional gain on disposal of £30m in the 2000 accounts.
Today we announced the acquisition in Australia of the Spring Valley and Wave beverage brands from Bonlac.
In October, we confirmed that we were in preliminary discussions with Pernod Ricard regarding the sale of Orangina and certain of their other non-alcoholic beverage brands. These discussions continue and they may or may not lead to a transaction.
Efficiency
We are focusing on driving significant improvements in efficiency and a proportion of the cost savings generated will be reinvested in new growth initiatives.
The key development will be the merger of Cadbury Ltd and Trebor Bassett, respectively our market leading UK chocolate and sugar confectionery businesses. Benefits from the merger include savings from purchasing, distribution and administration.
The restructuring charge in 2000 is expected to be between £50m and £55m, 30% of which relates to integration of acquisitions. A similar charge is anticipated in 2001 given the acquisitions already made.
Capital spend in 2000 will remain just below depreciation. It is expected to rise in 2001. The major reason for this will be the implementation of a three year investment programme to upgrade our business system processes based on a common global world-class operating platform. This will facilitate major efficiency gains in manufacturing and procurement.
John Sunderland, Cadbury Schweppes’ CEO, said, “Cadbury Schweppes remains committed to growing value for its shareowners.
“We have taken a number of significant steps this year, both organically and through acquisition, to ensure the development of robust and sustainable businesses in our two core markets of beverages and confectionery. Since Managing for Value was introduced nearly four years ago, the company has become strategically better positioned and more strongly focused on profitable growth.
“We are confident of achieving our earnings and cashflow objectives both in 2000 and in future years.”
