Cadbury Schweppes first-half earnings rise

by Eric Schroeder
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SINGAPORE — A one-time gain from the sales of beverage businesses in Europe, Syria and South Africa led to strong first-half profits at Cadbury Schweppes P.L.C. in the six months ended June 30. The gain more than offset costs arising from product recalls over salmonella contamination.

Net earnings in the six months ended June 30 were £819 million ($1,530 million), up from £237 million in the same period a year ago. This year’s results benefited from a one-time gain of £541 million related to the beverage businesses sales. However, the cost of the salmonella recall, which occurred in June after contaminated chocolate was discovered at a plant, and the resulting marketing activity and improvements to manufacturing are expected to cost the company approximately £20 million.

Net sales in the first half of 2006 were £3,416 million ($6,380 million), up 23% from the first half of 2005.

Operating income of the Americas Confectionery business was £92 million, up 21% from $76 million last year. Sales were £641 million, up 15% from the first half of 2005.

"Performance was driven primarily by gum, particularly in the U.S., where our share increased to over 31% compared to 26.5% around the time of the Adams acquisition," the company said. "Trident continued to do well in all markets. In the U.S., center-filled gum and renovation through packaging and flavor extensions were important contributors."

Operating margins in the year improved to 14.4%, versus 13.7% in 2005.

Americas Beverages also produced strong results. Operating profit of £278 million and sales of £1,120 million were up 14% and 33%, respectively, from the first half of 2005.

"U.S. carbonate revenue growth of 2.5% was led by Dr Pepper and other core flavor brands, and compared with a very strong first half in 2005 when results were boosted by innovation related pipeline fill," Cadbury Schweppes said. "Dr Pepper bottler volumes were 3% ahead benefiting from growth in base Dr Pepper and innovation, notably Dr Pepper Berries and Cream, which was launched at the end of the first quarter."

Cadbury Schweppes said the integration of Dr Pepper/Seven Up Bottling Group is proceeding "smoothly and to plan."

In a separate announcement, Cadbury Schweppes Asia Pacific said it has opened its first Regional Science & Technology Centre as part of its strategic plans to accelerate growth momentum in key emerging markets.

"Asia Pacific is a significant market for us," said Rajiv Wahi, president of Cadbury Schweppes Asia Pacific. "With a mix of developed and emerging market growth potential, the region will continue to deliver above average growth. In Asia Pacific, our investment in innovation will also be ramped up to open up new markets for us and increase our penetration in markets where we already have high value share."

In 2005, Cadbury Schweppes Asia Pacific contributed 18% to Cadbury Schweppes group revenue. The S$4.3 million ($2.7 million), 9,900-square-foot innovation center in Jurong will house 10 global researchers.

The center’s functions will include developing innovative products in the gums and candy categories, exploring new and emerging technologies, and networking with other research organizations internally and externally around the world.

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