Cadbury Schweppes sale of beverage division imminent?

Posted by Daniel Palmer on 1st August 2008

Cadbury has announced a review of their beverage operations here in Australia, upon reporting strong first half growth in 2008. The news has sparked speculation that a sale of their Australian beverage business could be in the offing.

Following the demerger of Cadbury Schweppes in the US, Australia is the only remaining country where Cadbury has a combined beverage and confectionery business. As such, it has been anticipated that they would strongly consider separating the two sectors of their Australian operations and this has been confirmed by the proposed review of their Australian beverage business.

“As it relates to our portfolio and following the demerger of the Dr Pepper Snapple Group, we intend to review the position of our remaining beverage business,” a statement from the company reported. “While this business is integrated with our confectionery operations in Australia, we have been separating key commercial functions, primarily to improve the focus on the individual categories of confectionery and beverages.”

Cadbury expect the review to take “some months to complete” and are planning to provide further details in their October Interim Management Statement.

Coca-Cola Amatil is reportedly interested in Cadbury’s Australian beverage business, with their CEO, Terry Davis, indicating to reporters in May that a purchase of Schweppes would make sense. They did make a $1.85b play for Schweppes just under a decade ago but were foiled by the ACCC. The landscape of the beverage industry has changed since then and, consequently, they may have more luck in gaining the approval of the competition watchdog now.

Cadbury reported base business revenue growth of 7% with growth in Australia, one of their 12 core markets, solid in both the confectionery and beverage divisions of the business.

Roger Carr, Cadbury’s Chairman, was pleased with the robust first half figures. “These results demonstrate the merit of focus, the pricing power of the brands and the determination of management to build profitable growth,” he claimed. “Against a background of more challenging economic conditions, we will take whatever measures are necessary in costs, prices, organisation structure and business portfolio to underpin and deliver the performance commitments we have made for 2008 and beyond.”

Confectionery growth in Australia benefited from the combination of successful innovation and the phasing of promotional activity, according to the company. While, despite the beverage division in Australia having a “good half” revenues were impacted by the planned exit from a non-core manufacturing contract.

Cadbury highlighted that the impending cancellation of their distribution agreement with Red Bull was likely to have a negative impact on their drinks business. “We have recently been given notification by Red Bull that it intends to assume the distribution for Red Bull in Australia from January 2009,” the statement read. “In 2007, this distribution arrangement contributed around 6% to our beverage gross profits in Australia.”