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Cadbury Schweppes Profits Rise

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Cadbury Schweppes reported a 1% rise in 2004 profits and the company expects to meet its goals in 2005.

Cadbury Schweppes, who makes Dr. Pepper and Trident gum just to name a couple of its brands, posted 2004 underlying pre-tax profits of 933 million pounds ($1.78 billion). Analysts had previously predicted 927-953 million pounds.

The following is taken from the company’s press release:

2004 was a good year for Cadbury Schweppes with progress made against the Group’s goals and priorities.

We delivered results within our financial goal ranges:

– Like-for-like sales growth of 4%(1)

– Underlying operating margins ahead by 50(1) basis points

– Free cash flow generation of GBP265(1) million

((1) at constant exchange rates)

These results were achieved while we integrated our largest ever acquisition (Adams), executed major cost reduction projects and experienced cost increases well above the rate of inflation. We also increased investment in our brands with our marketing to sales ratio ahead by 20 basis points.

Our Fuel for Growth initiative delivered cost benefits of around GBP75 million during the year, in line with expectations. This brings the cumulative gross cost savings to GBP100 million since the initiative started in mid-2003.

Our confectionery businesses around the world had a successful year with like-for-like sales growth of nearly 6% led by our core brands including Cadbury, Trident and Halls, and a strong year-end holiday season. We grew or maintained our share in most of our key markets.

The Adams business is exceeding our expectations, with sales and profits in 2004 higher than the acquisition case driven by strong category growth, increased innovation and marketing investment. Markets identified as underperforming at the time of acquisition, notably Brazil and Japan, have been turned around. The cost synergies are being delivered in line with plan and we are beginning to see benefits from revenue synergies.

Our Smart Variety commercial discipline enabled the Group to leverage more effectively its brands, technologies and routes to market around the world during 2004.

We saw a significant improvement in our beverage business with sales rising by 2% year-on-year. Growth would have been approximately 3% excluding the impact of a poor summer in Europe. Our US carbonated soft drinks (“CSD”), Mexican and Australian soft drink businesses produced strong results.

The integration of our North Americas beverage business into a strengthened commercial entity was successfully completed during the year, driving both top-line and margin benefits. Our CSD business outperformed the market, with sales growth of 5% during the year, led by our flagship Dr Pepper brand and our diet portfolio. In the second half, we relaunched our Mott’s and Snapple non-carbonated brands with encouraging early results.

The integration of Europe Beverages progressed to plan during the year with notable achievements being the commercial and supply chain integration of the Orangina and Schweppes businesses in France and our distribution systems in Spain.

Investment in enhancing the capabilities of the Group to generate growth focused on innovation and systems. The focus on innovation saw a significant increase in new product launches. As a result, the proportion of sales represented by innovation rose from 6% to 9%.

We continued to upgrade our systems, with a number of major implementations successfully completed in US CSD business, Ireland, Japan and South America. We also created a new back-office and logistics infrastructure in our US confectionery business.

We reinforced our reputation with our employees and communities in which we operate by aligning our rewards with our new goals and priorities; further strengthening our understanding of and response to concerns about the role of food in public health; and embedding our corporate and social responsibility policies and programmes around the world.

2005 Outlook

In 2005, we expect to deliver within our Goal ranges for sales and margin growth for the year as a whole on a 52 week basis and to see an uplift in free cash flow generation in line with our goal of generating GBP1.5bn of free cash flow over the 2004 – 2007 period.

We have good sales momentum across the business. In confectionery, while we expect continued good growth for the year as a whole, in the first half we will be implementing major new systems in our UK and Canadian confectionery businesses. In beverages, we expect our CSD portfolio to perform well but sustaining the outstanding growth rates we saw in 2004 will be challenging. Our non-CSD portfolio in North America and our European beverage business are expected to have a better year.

Fuel for Growth cost savings are expected to be in the region of GBP100 million. Raw material costs are not expected to rise as sharply as they did in 2004. We will, however, be investing more heavily behind the long-term growth of the business, building on the successes we had last year. This increase in investment will be weighted toward the first half of the year.

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Cadbury Schweppes Profits Rise
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