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Gum and emerging markets drive Cadbury's 2005 growth

By Peter Stiff , 21-Feb-2006

Cadbury Schweppes has exploited the continued global growth of chewing gum and tapped into emerging new markets to report increased sales for 2005.

Sales were £6.5bn in 2005, an increase of seven per cent on 2004, while operating profit grew to £873m, up 13 per cent from the previous year.

The company's confectionery revenues were up 6.3 per cent, resulting in market share grains in 16 out of its 20 top markets.

Gum sales were responsible for much of the growth, which isn't surprising considering the upturn in chewing gum sales worldwide.

Total US chewing gum sales alone, excluding Wal-Mart sales, stood at $944 million for 2005, up 23 per cent since 2002, according to ACNielson.

Cadbury's US confectionery foothold, particularly in gum and medicated sweets, was boosted with the purchase of Adams in 2003.

It is the integration of these brands that management today cited as making the company's gum-driven confectionery growth possible.

The former Adams brands, including Halls, Trident, Dentyne and the Bubbas had revenue growth of 11 per cent, thanks to new products.

Trident's growth of 21 per cent, is attributed to the launch of Trident Splash, a centre filled gum, in North America and some European markets.

Dentyne grew by five per cent, thanks to success of Dentyne soft chew in the US and Canadian markets, as well as its introduction in Malaysia.

Halls revenues increased nine per cent, due to the company broadening distribution in Europe.

The other key factor behind Cadbury's sales growth was emerging markets, which in 2005, accounted for 30 per cent of the company's confectionery business.

Sales in Latin America increased 13 per cent, in Africa by 10 per cent and rose 11 per cent in Asia Pacific. Whilst Cadbury's biggest increase in confectionery sales came in Russia, up 32 per cent.

In comparison the company's developed markets were stagnant.

Sales increased four per cent in the US, Canada, Australia and Japan, whilst in the UK there was only a two per cent rise in sales.

However, management said a two per cent rise was credible considering that innovation was limited due to the implementation of the company's new Probe computer system that came at a cost of £20m to the UK business.

One area of promise in the UK was organic chocolate producer Green and Blacks, which Cadbury acquired in May of 2005, registering sales growth of 49 per cent.

At the press conference after the announcement of the 2005 results, the company's executive officers explained some of the moves Cadbury made over the last 12 months.

After integrating the Adams brands Cadbury said it had started a programme of reallocating resources to areas of strong growth and return opportunities.

The company recently finalised the sale of its European Beverages arm and other businesses, which it views as non-core assets, such as its German confectionery business Piasten.

Management said the sale of these assets is expected to raise between £350m and £400m by the end of 2007.

Cadbury plans to use these funds to make acquisitions and investments in its priority markets as well as financing its pensions scheme.

The confectioner said that development of new products would continue through 2006, as would further focus of emerging markets.

Management said that the company was experiencing price increases in oil, glass and plastic, but that all major commodities were secure for 2006.

Cadbury has recently shown its growth strategy through investments in production facilities in Poland, a gum innovation centre in the US and only yesterday raising its stake in its Nigerian confectionery business.

Cadbury Schweppes results by region

Americas

Cadbury's Americas confectionery business had sales of £1.2bn in 2005, up 13 per cent.

Operating profit was £172m, an increase of 21 per cent on the 2004.

Management said that growth was driven by the five power brands in the region, Trident, Dentyne, Halls, Cadbury and the Bubbas, which account for 70 per cent of sales.

In the US, gum was responsible for sales growth of 11 per cent, with new product line extensions being launched.

The Americas region's emerging markets also increased sales, up 10 per cent in Mexico and 15 per cent in Brazil.

EMEA

In the Europe, Middle East and Africa region there was a sales increase of four per cent.

Confectionery sales in Africa and Russia grew by a total of 11 per cent.

In Western Europe the company focused on gum and sugar confectionery.

Management reported that Cadbury grew its market share in gum in most countries thanks to new products.

Sales of Hall's in Russia were up 52 per cent.

The company has indicated that premium chocolate in the UK is a big area for potential development.

Management said during the results press conference that it had established a twofold strategy to initiate growth in the UK premium market.

As well as acquisitions, such as the purchase of Green and Blacks, Cadbury will seek to further its attempts at giving existing Cadbury brands premium appeal.

Asia Pacific

Sales in Asia Pacific last year furthermore showed signs that the development of emerging markets was important for the company.

Revenues for the region in 2005 totaled £1.2bn, an increase of 11 per cent.

Operating profit was £157m, up 19 per cent over last year.

New product launches increased sales in Australia and New Zealand by seven per cent.

Of the region's emerging markets India had the biggest sales growth, with increases of 14 per cent, giving Cadbury a 70 per cent market share.

In Thailand sugar-free gum helped Cadbury gain a 59 per cent market share.

The launch of Dentyne in Malaysia gave the confectioner a 17 per cent market share.

In China Cadbury re-launched its Dairy Milk range giving the company an 11 per cent increase in sales.

The company now holds a 20 per cent share of the Chinese market.

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