Cadbury keen on acquisitions

Related tags Free cash flow Cadbury plc

Cadbury confirms its interest in Adams chewing gum business after
yesterday's news of a 10 per cent rise in half year profits.

Following news of British confectionery and beverages group Cadbury Schweppes' 10 per cent rise in half-year profits, the company has hinted that it is likely to consider buying Adams confectionery.

In a Reuters report, the group said most of its growth came from recent purchases and it would probably join the $4-billion-plus auction of US-based Adams later this year.

Cadbury shares reversed early losses to gain four per cent to 442p by 1340 GMT as the UK stock market rebounded and its results came at the top of analysts' forecasts, shaking off some worries over signs of tough times in North American soft drinks.

The world's fourth-biggest chocolate maker and third-largest soft drinks group reported underlying pre-tax profits of £386 million (€607m) for the year to 16 June, at the top of analysts' forecast range of £372-385 million.

Chief executive John Sunderland said most of the 6.6 per cent rise in half-year volumes came from acquisitions and he would probably look at the Dentyne and Trident chewing gum business when it is auctioned by US drugs group Pfizer.

"Adams is not officially for sale, but it is a significant confectionery business and you would expect us to have a look and we probably will,"​ he said in an interview after the results.

Cadbury bought French chewing gum business Hollywood in 2001 and Denmark's Dandy last month to make it the world's number three in chewing gum after Wrigley and Adams. It sees gum as a sector with more growth potential than chocolate confectionery.

"Chewing gum has been the fastest growing confectionery category over the last five years, with its health benefits and tooth whitening properties,"​ Sunderland added.

Sunderland said the company was on track to meet its earnings and free cash flow target for the year, but admitted its like-for-like sales were only marginally ahead at three per cent due to tough trading in North American drinks and a 40 per cent collapse in Argentine confectionery volumes.

The group targets double-digit percentage earnings growth and annual free cash flow of £300 million, which it has used for recent acquisitions like last year's Orangina.

Half-year underlying volumes at its Dr Pepper/7UP North American division, which earns half group profits, were off 0.6 per cent against a flat industry as it suffered from poor weather in May and June and disruptions in bottling as some Pepsi bottlers shifted to Pepsi's lemon-lime Sierra Mist from 7UP.

Cadbury said the switch to independent bottlers had cost it one percentage point in carbonates volumes in the first half, but hoped its new flavoured Dr Pepper Red Fusion, launched earlier this month, will help its second half performance.

Sunderland expects volumes at its North American unit, to be broadly flat in 2002 in an industry, dominated by Coca-Cola and PepsiCo, seen flat to slightly higher.

"Cadbury has consistently produced double-digit earnings growth but what the market is wanting to see is better top-line sales growth in North American beverages, and next year will be pretty tough,"​ said analyst Graham Jones and HSBC Securities.

David Lang at Investec Securities said: "This is another good result, but there was a bit of disappointment in US carbonates as the group moves 7UP into the independent system."

Its UK confectionery division Cadbury Trebor Bassett, which provides 20 percent of group profits, saw good half-year growth in both volume and profits, helped by gains in market share which were driven by new products such as Dream and Brunch Bar.

Group sales rose seven percent to £2.35 billion and the half-year dividend was increased by 4.5 per cent to 3.5 pence a share, with the group seeing a continuation of double-digit earnings per share growth, up 12 percent at 12.9p.

Related topics Market Trends

Follow us


View more