Cadbury Sales Growth in Mid-Range
Underlying margins are likely to be broadly level with last year, with Fuel for Growth savings offset by higher commodity costs, increased investment in growth and a challenging year in the UK.
12/12/06 Cadbury Schweppes has issued a trading update on year-to-date performance in 2006. The preliminary results for 2006 will be announced on 20 February, 2007. Todd Stitzer, Cadbury Schweppes' CEO said, "2006 has been a challenging year for Cadbury Schweppes with very strong performances across large parts of our business partly offset by events in the UK and Nigeria. Although these have taken the edge off another year of strategic and operating progress for the group, our performance in 2006 will be in line with previous guidance. As we move forward into 2007, we believe that the fundamentals of our business remain strong."
Overall, trading remains in line with expectations outlined in October ahead of the company's IR Seminar. Cadbury said they expect like-for-like revenue growth around the middle of its goal range. Underlying margins (excluding Cadbury Schweppes Bottling Group and Cadbury Nigeria) are likely to be broadly level with last year, with Fuel for Growth savings offset by higher commodity costs, increased investment in growth and a challenging year in the UK.
Cadbury measures performance against its goal range for revenues excluding acquisitions and disposals, and for margins including acquisitions and disposals. In November, Cadbury Nigeria discovered a significant overstatement of its financial position. A review by the investigating accountants is continuing and for the purposes of this update, the results of Cadbury Nigeria (a fully consolidated subsidiary from February 2006) have been excluded from our comments on underlying performance. For the full year, after confirmation of the audited results, we expect to include Cadbury Nigeria's current year trading losses in our underlying results.
Three of our four regions - Americas Beverages, Americas Confectionery and Asia Pacific - continue to make strong progress benefiting from further share gains, successful innovation and growth in emerging markets.
In Americas Beverages, share gains in carbonated soft drinks (CSDs) are being driven by good performances from key brands, including Dr Pepper, 7 UP, Sunkist and A&W. In non-CSDs, the core brands are showing good growth with Snapple showing some improvement following the introduction of a range of premium teas. The performance of our recently acquired bottling operations has been strong and their integration remains on track, with good progress being made on cost and revenue synergies.
Its Americas Confectionery businesses are having an excellent year. In US gum, our share remains 300 basis points ahead year-to-date benefiting from flavour and packaging innovation on Trident, and the introduction of a new brand, Stride which now has a 2.7% share of the $3.6 billion US gum market. Our Latin American businesses continue to grow strongly with innovation driving improved results in Mexico.
Performance in Europe, Middle East and Africa (EMEA) has been mixed in the second half with stronger top-line growth in emerging markets largely offset by a weaker performance from the UK. Profits in the second half will be impacted by challenging trading in the UK and costs relating to increased innovation across the region. In Continental Europe, our businesses in France, Spain and Greece are benefiting from successful gum innovations including further launches of centre-filled gum products under the Hollywood and Trident brands.
In the UK, the confectionery market is improving and the important pre-Christmas selling season is progressing satisfactorily with recent innovations, Cadbury Melts and Flake Dark, continuing to perform strongly. Although competitive activity has been strong, our share year-to-date is in line with last year and we remain encouraged by the progress made. In the last few days, the company announced to the trade that they will be launching Trident Splash and Trident Soft gum brands at the end of January.
Cadbury’s businesses in the Asia Pacific region have continued to perform well. They expect good results from Australia and New Zealand despite intensified retail competition in the second half. In emerging markets, India is having a particularly good year with recent performance boosted by a very strong demand during the important Diwali festival.
Following its announcement on 16 November, Cadbury Nigeria (our 50.02% owned subsidiary) has now announced that it has received a preliminary report from the investigating accountants into the accounting irregularities. This has confirmed a significant and deliberate overstatement of the company's financial position over a number of years. The CEO and Finance Director have been relieved of their positions. A complete review of the business has been initiated by the Board of Cadbury Nigeria.
Cadbury Nigeria has announced that it expects to report an operating loss in 2006 in the range of £5 - £10 million. In addition, it will also make one-time exceptional charges in respect of profit and balance sheet overstatements for the current and prior years of around £55 - £60 million. These operating losses and exceptionals remain subject to year end audit processes. Cadbury Schweppes' share of the one-time charges will be booked in non-underlying items in the 2006 accounts.
The gross value of Cadbury Nigeria on Cadbury Schweppes' balance sheet as at 30 June 2006 was £70 million, including £25 million of goodwill. The net value after deducting minority interests is £48 million. In 2005, Cadbury Nigeria was reported as an associate in Cadbury Schweppes' accounts and contributed a net profit of £6 million. In the first half of 2006, Cadbury Nigeria contributed a net profit of £1 million to the Group. It was accounted for as an associate until 28 February and as a fully consolidated subsidiary for the remaining 4 months.
