Cadbury Schweppes Revenues Up in 2007

19/02/08 Cadbury Schweppes’ confectionery business had an excellent year with strong commercial execution and tight control of costs driving 7% revenue growth and a good margin performance in the second half. The company said that these results reflect the benefits of restructuring initiatives undertaken between 2003 and 2007 and continued investment behind our brands. “Although the economic outlook for 2008 remains uncertain, we are encouraged by the good trading momentum we have seen in the new year and our continued progress on cost reduction initiatives. We expect meaningful margin progression in 2008," Todd Stitzer, Cadbury Schweppes CEO said.

"Americas Beverages performed well in a tough market with its share of the carbonates market growing for the fourth year in a row. Snapple had an encouraging year driven by successful new premium product launches. As the business prepares for demerger, we believe that the initiatives taken in recent years to invest in core brands, reduce costs and strengthen its route to market gives the business a strong platform for its future success as an independent company," Stitzer said.

2007 was another significant year in the evolution of Cadbury Schweppes and it marked the end of the 2004 - 2007 strategic plan we set out in late 2003. In March 2007, the company announced the decision to separate our confectionery and Americas Beverages businesses and in June, we set out a new four-year "Vision into Action" plan for confectionery. In October, the company confirmed that the separation would take place by way of a demerger with completion likely during the second quarter of 2008.

Both businesses have substantially achieved the goals we set out for them in 2003. Strategically, they have been strengthened through acquisitions and disposals. Commercially, performance has been driven by a significant investment in marketing and commercial capabilities and a doubling of our innovation rate.

In 2007, the performance of confectionery and Americas Beverages benefited from these strategic and operational improvements. By the end of the year, the businesses were operating largely as independent entities and were already beginning to show the benefits of greater focus.

In confectionery base business revenues grew by 7%, above the top end of our new confectionery goal range, bringing the four year annual growth rate to over 6%. Revenue growth was broadly based across most of its markets with gum and emerging markets continuing to show double-digit growth.

In Americas Beverages, base business revenues grew by 4%, a good result in view of the challenging US CSD market. The company’s CSDs continued to benefit from the trend away from colas to flavoured CSDs and an excellent performance from Snapple reflected highly successful innovation in super-premium teas and juices. Underlying margins (before the impact of exchange) fell by 340bps reflecting consolidation of bottling acquisitions and the losses arising from the launch of Accelerade. A major reorganisation was planned and completed during the fourth quarter and is expected to deliver £35 million of benefit in 2008, a payback of around a year. The acquisition of SeaBev, an independent bottler, strengthened our route to market in the south east of the US, the company said.

In an update on the demerger including indicative capital structures for the two new businesses, and the long-term financial policies of the new beverage business, Dr Pepper Snapple Group, Inc. , the company has sais that the demerger process continues and they are working towards completion during the second quarter subject to legal and shareowner approvals and debt refinancing. 

Throughout the separation process, the Board has been focused on creating capital structures for both businesses which maximise shareowner value. In the light of current turbulent conditions in the debt markets, particularly the cost and availability of sub-investment grade debt, it has become clear that both companies can only be financed economically by implementing investment grade capital structures. On this basis, there will be no capital return to shareowners on demerger. Additional information is provided on page 11 and a further update will be provided by the end of March.

Cadbury Schweppes also announced appointment of the Chairmen for the two new companies as they prepare for the demerger. Roger Carr, currently Deputy Chairman will be appointed Chairman of the new confectionery company, Cadbury plc. Wayne Sanders, former President and CEO of Kimberly-Clark, will be appointed Chairman of the new beverages company, Dr Pepper Snapple Group, Inc.

In terms of outlook, the company said that their strong confectionery revenue momentum has been driven by the sustained investment in growth and capabilities in recent years and this momentum has continued. In 2008, we expect to grow base business revenues towards the upper end of our 4% - 6% goal range. As previously indicated, commodity input costs are expected to be 5% - 6% higher in 2008 and we will seek to offset these increases through price rises. We are making good progress on our cost reduction initiatives and expect to deliver significant cost savings during the year. As a result, we expect to report meaningful margin progression in 2008 in line with our mid-teens margin goal by 2011.

In 2008, Cadbury Schweppes expects Americas Beverages to grow base business revenues between 3% - 5% in spite of  the impact of the loss of the Glacéau contract (which generated around £110 million of revenues in 2007). Commodity costs are expected to be around 6% higher, as previously indicated, with price increases on CSDs and juice products being implemented to offset these cost increases. We expect the margin impact from the lost contribution from Glacéau (around £20 million) and a full year's dilution from bottling acquisitions to be partially offset by savings from the restructuring programme announced in October 2007 and the elimination of launch costs from Accelerade.  As a result, underlying margins in 2008 are expected to be modestly lower year-on-year. Given the relative timing of commodity price increases and marketing spend phasing, operating profit growth is expected to be weighted toward the second half.