UK confectionery and soft-drinks giant Cadbury Schweppes has said that it will cut around 5,500 jobs and 20 per cent of its factories by 2007. This rationalisation is at the heart of Fuel for Growth, a four-year restructuring plan announced this morning.
The company believes that if it is to successfully cut costs and encourage growth, it needs to bring its cost base into line. "The cost reduction programme will provide the funds to increase our investment in marketing and innovation to drive our top line growth," said chief executive Todd Stitzer in a statement.
Cadbury hopes that it will save €576 million a year in costs from the plan. The strategy follows the recent €3.6 billion acquisition of Adams, and suggests that that the cost of integrating the US-based confectioner have been highly than was first thought.
Indeed, the acquisition may have opened up new markets, but it has also given the UK confectioner a few headaches. The integration of the Adams business means that the global Cadbury empire consists of 133 plants located in every corner of the world. It was perhaps inevitable then that some form of ratinoalisation would take place.
In fact, the restructuring is the latest in a series of cost-cutting exercises initiated by the confectioner. In February this year, the group streamlined its management structure by halving the number of reporting units to five in a move to cut costs and speed up decision-making. And in the summer, Cadbury announced plans to close two confectionary factories in the UK.
This particular announcement followed a 4 per cent fall in half-year earnings per share and a five percent drop in underlying pre-tax profits in July 2003. And in September, the company said its full-year 2003 trading performance would be similar to the first half after recent hot summer weather had dented confectionery sales in Europe. This year has not been a great year for the confectionery industry as a whole.
The company also recently outlined a shake-up of its Adams chewing gum and packaging operations in Brazil, which will result in over 100 job losses. Cadbury has put its normal target of double-digit underlying earnings growth on hold for a year, as it continues to integrate the Adams sweets and chewing gum business.
The firm said that the cost cuts contained in Fuel for Growth will help underlying operating profit margins rise 50-75 basis points each year between 2004 and 2007, and result in free cash flow of €2.2 billion during the period.
Cadbury claims to be the world's biggest confectionery business after its acquisition of US based sweets and chewing gum firm Adams, which was finalised in March. The group employs about 55,000 people worldwide and has a large North American drinks business including such brands as Dr Pepper and Seven Up.