Omens not good for Cadbury Schweppes' global aspirations

STOCK MARKET WEEK

Life was never going to be easy for Cadbury Schweppes, the company tasked with taking on arch-rivals like Coca-Cola, PepsiCo, Mars and Nestle in the cut-throat international soft drinks and confectionery business.

From its historic chocolate-making base at Bourneville in Birmingham, Cadbury aspires to conquer the world by building a truly global presence in both markets - drinks now account for almost two-thirds of profits - but the omens are not good. In carbonated soft drinks, it lags a distant third behind Coca-Cola and Pepsi, while in confectionery it is fourth to Nestle, Mars and Kraft Jacob Suchard, owned by Philip Morris.

True, Cadbury operates in growing international markets but they are also consolidating ones. "This poses challenges as well as opportunities for a group that has more limited resources than its international competitors and has satisfied market appetite for its paper," argues Tim Potter, food analyst at Merrill Lynch in a note previewing Cadbury's full-year results this Wednesday, when he will be looking for pre-tax profits to advance from pounds 512m to pounds 590m.

Given these key strategic and structural considerations, it is small wonder that Cadbury's investors have not exactly enjoyed a bountiful return on their investment.

In the last year alone the shares have underperformed the stock market by almost 20 per cent, coming off a high of 561p to close on Friday at 508p, having touched a low of 468p earlier this year.

One reason for the market's caution is Cadbury's falling market share in the US soft drinks market.

Splashing out $1.7bn two years ago for Dr Pepper gave Cadbury the 7-Up lemonade brand and number two slot in the global non-cola soft drinks league. But the deal came at a heavy price. It made Cadbury a much greater threat to Coca-Cola, which responded ruthlessly by mounting a heavy promotion campaign for Sprite, its own lemon-lime brand.

In turn, 7-Up was re-launched and although several years of volume decline has been arrested some loss in market share is inevitable.

According to brokers NatWest, US trade sources say Dr Pepper/7-Up volumes rose 0.3 per cent last year compared with a market increase of 3.6 per cent. Of the top four players in the US market, Cadbury was the only one to have recorded a loss in market share - to 14.8 per cent from 15.3 per cent.

Longer-term, analysts are concerned that the relative weakness of 7-Up and the long tail of smaller beverage brands will restrict Cadbury's ability to compete in the US soft drinks market. Its decision to sell its 51 per cent stake in its UK soft drinks bottling joint venture to a Coca-Cola subsidiary for pounds 623m has also raised fears that it will no longer be able to exert enough control on its business when it relies on external bottlers.

At the time the deal was completed last month Dominic Cadbury, chairman, said its main purpose was to allow Cadbury to release funds hitherto tied up in bottling assets and devote them to the growth of the group's branded portfolio. Debts will also come tumbling down to around pounds 900m at the end of this year from an estimated pounds 1.4bn in 1996.

Talk that Cadbury may embark on the acquisition trail again, possibly by swooping on that old takeover favourite United Biscuits, looks wide of the mark. Indeed, with the Anglo-Dutch food and detergents giant Unilever apparently keen to expand by using the cash it will get from the sale of its speciality chemicals businesses, speculative interest in Cadbury itself has been growing.

Cadbury Schweppes is just one of the features in one of the busiest weeks of the year for corporate results, which include big-hitters like HSBC bank, conglomerate BTR, drugs giant Glaxo Wellcome, speciality chemicals group Cookson, and engineers GKN and Rolls-Royce.

Healthcare group Smith & Nephew is set to announce solid profits growth tomorrow. Few surprises are expected as the company assured analysts in January that it is coping well with tough market conditions and the impact of a strong pound. They expect up to pounds 197m at the pre-tax level versus pounds 180m in 1995.

Prices in the US, which accounts for around 40 per cent of Smith & Nephew's turnover, are under pressure in such areas as orthopaedic implants and wound management by increasingly powerful health providers. News about the company's novel skin replacement product Dermagraft will also be eagerly awaited.

The betting and hotel group Ladbroke is expected to report a profit rise of around 30 per cent to around pounds 160m when it releases its 1996 figures on Thursday.

The main focus of attention is likely to be on any plans Ladbroke might have to launch a bid for the rival London casino operator Capital Corporation, which is currently on the receiving end of a hostile pounds 181m approach from London Clubs.

Analysts expect Hilton Hotels Corporation to move swiftly to acquire the 5 per cent holding in Ladbroke it has said it will take "in due course" following the recent deal to reunite Hilton hotels brand name for the first time in 32 years. They insist that HHC's $6.5bn bid for ITT Corp, owner of the Sheraton hotel chain, was already being lined up before the Hilton alliance with Ladbroke was sealed.

The tobacco and insurance group BAT Industries is expected to post pre- tax profits of up to pounds 2.70bn (pounds 2.38bn) when it reports 1996 results on Wednesday. Like Cadbury Schweppes, Smith & Nephew and Ladbroke, US factors will be to the fore again.

Tobacco litigation in the US dominates sentiment towards the shares and investors are keen to hear about any developments on this front.

Both BAT and RJR Nabisco have said that they will consider an industry- wide settlement to bring an end to the ongoing legal battles, while Philip Morris is also thought to be amenable to settling the disputes.

Start your day with The Independent, sign up for daily news emails
Voices
Lucerne’s Hotel Château Gütsch, one of the lots in our Homeless Veterans appeal charity auction
charity appeal
Sport
Brendan Rodgers is confident that Sterling will put pen to paper on a new deal at Anfield
footballLIVE: Follow all the latest from tonight's Capital One quarter-finals
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
tv
PROMOTED VIDEO
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Voices
Jimmy Mubenga died after being restrained on an aircraft by G4S escorts
voicesJonathan Cox: Tragedy of Jimmy Mubenga highlights lack of dignity shown to migrants
News
i100
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
Life and Style
tech
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Ashdown Group: Java Developer - North West London - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Selby Jennings: Corporate Communications & Marketing Specialist – Geneva

120,000 - 150,000 chf + bonus: Selby Jennings: A leading Swiss Private Banking...

Day In a Page

Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum
France's Front National and the fear of a ‘gay lobby’ around Marine Le Pen

Front National fear of ‘gay lobby’

Marine Le Pen appoints Sébastien Chenu as cultural adviser
'Enhanced interrogation techniques?' When language is distorted to hide state crimes

Robert Fisk on the CIA 'torture report'

Once again language is distorted in order to hide US state wrongdoing
Radio 1’s new chart host must placate the Swifties and Azaleans

Radio 1 to mediate between the Swifties and Azaleans

New chart host Clara Amfo must placate pop's fan armies
Homeless Veterans appeal: 'It's life, and not the Forces, that gets you'

Homeless Veterans appeal: 'It's life, and not the Forces, that gets you'

The head of Veterans Aid on how his charity is changing perceptions of ex-servicemen and women in need
Torture: It didn't work then, it doesn't work now

Torture: It didn't work then, it doesn't work now

Its use is always wrong and, despite CIA justifications post 9/11, the information obtained from it is invariably tainted, argues Patrick Cockburn
Rebranding Christmas: More public bodies are refusing to give the festival its name for fear of causing offence

Rebranding Christmas

More public bodies are refusing to give the festival its name for fear of causing offence. They are missing the point, and we all need to grow up
A Greek island - yours for the price of a London flat

A sun-kissed island - yours for the price of a London flat

Cash-strapped Greeks are selling off their slices of paradise
Pogues could enjoy fairytale Christmas No 1 thanks to digital streaming

Pogues could enjoy fairytale Christmas No 1 thanks to digital streaming

New system means that evergreen songs could top the festive charts
Prince of Wales: Gruff Rhys on his rock odyssey, and the trouble with independence

Prince of Wales: Gruff Rhys

He is a musician of wondrous oddity. He is on a perpetual quest to seek the lost tribes of the Welsh diaspora. Just don't ask Gruff Rhys if he's a national treasure...