Surprises make an impact on Cadbury

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It has been quite a year for Cadbury Schweppes. 1995 started with the pounds 1bn acquisition of Dr Pepper, the largest deal in the group's history. Then came the long hot summer which boosted sales of soft drinks to record levels, but saw chocolate sales melt away. By the year-end the company had signed deals in Canada that made it the country's number one confectionary group.

Yesterday's results presentation was not short of surprises. Unfortunately for the share price, most of them had a negative impact. First, David Wellings, the highly regarded chief executive has decided to retire to Majorca after just three years at the helm. The company is also seeking a full listing in the US following the Dr Pepper deal, which has transformed Cadbury's US market share and sparked more interest in the group among American institutions.

The results themselves were not without a few surprises. Pre-tax profits were 10 per cent ahead at pounds 526m in the year to December on sales up 19 per cent to pounds 4.8bn. However, the market reacted badly to the higher integration costs at Dr Pepper, which have risen from pounds 30m to pounds 49m, although the business has performed slightly better than expectations. In the Schweppes drinks division, sales were up 28 per cent and trading profits 52 per cent ahead. Though the hot UK summer boosted volumes by 11 per cent, profits were down due to increased competition from own brands and higher promotional costs.

The summer heatwave and start-up costs in Eastern Europe meant the confectionary division had a tougher year. Sales edged ahead by 8 per cent to pounds 1.98bn and profits limped up 2 per cent to pounds 240m. The margin fell by 0.6 percentage points. However, the company is investing in new markets such as Poland, China and Argentina with a factory already under construction in Russia. All of this makes Cadbury's pounds 10.6m profit from its stake in Camelot, the lottery operator, a mere drop in the ocean.

A number of short term issues still remain to be resolved. The US listing is not necessarily going to be a guaranteed success, while the appointment of a successor to David Wellings is also crucial. But in the longer term Cadbury Schweppes looks a steady performer with quality brands. Merrill Lynch is forecasting profits of pounds 600m for the current year. With the shares down 19p at 536p the shares are on a forward rating of 15. Hold.