Cadbury Schweppes, the British confectionery maker and soft drinks producer, is to lose around 10 per cent of its 55,000-strong workforce as part of a major cost-cutting measure designed to return the group to profitability.
Speaking at an investors seminar, Cadbury's CEO Todd Stitzer sad that the rapid growth of the company in recent years, in particular the acquisition of confectionery group Adams in March of this year, meant that it now had a "complex organisational structure for a business of our size and a disproportionate cost base".
He said that the company had already made a number of organisational changes this year with the aim of simplifying the business. "We consolidated nine operating units to five and separated the management of our commercial activities from the supply chain," Stitzer said.
But the focus for the next four years would be on reducing costs and improving profitability, as well as driving sales of the company's international and local brands by improving the route to market, he said, unveiling two new programmes designed to achieve these respective goals - Fuel for Growth and Smart Variety.
The Fuel for Growth will help the company reduce both direct and indirect costs, excluding marketing, by some £400 million a year by 2007, mainly through a 20 per cent reduction in the number of production facilities (there are currently 133) and the 10 per cent drop in staffing numbers.
"We estimate that the incremental investment required to deliver these savings will be £900 million over the 2004-2007 period, split broadly equally between restructuring and capital spend. This investment is in addition to our ongoing maintenance capital spend requirements of around 3 per cent of sales," Cadbury's CEO said.
In turn, up to a third of the benefits from Fuel for Growth will be reinvested in the other initiative Smart Variety, which is designed to accelerate sales growth through increased spend on marketing and innovation.
"Smart Variety is a commercial discipline which allows us to leverage the combination of our broad category participation, enlarged geographic presence and strong routes to market. This is particularly potent in our confectionery business but also has application in our beverages operations," Stitzer said.
The combination of these two programmes will be to increase underlying operating profit margins by 50 to 75 basis points every year, he said, as well as generating growth of around 3-5 per cent in net sales. They should also help the group generate free cash flow of around £1.5 billion over the period, he added.
Although the company has been expanding its confectionery business for several years with a number of small bolt-on acquisitions, it was the massive Adams deal earlier this year that propelled it to the dizzy heights at the top of the global confectionery ranking.
But it was also responsible for a major downturn in the company's short-term financial fortunes as it struggled to integrate the business. While sales rose by 15 per cent to £2.7 billion (€3.8bn) in the first half, the restructuring costs and additional goodwill charges related to the acquisition meant that operating profits dropped 5 per cent to £366 million and pre-tax profits slid by a worrying 16 per cent to £294 million.
In particular, the British company has had to focus on improving the gum maker's fortunes in a number of key markets over that period. In the massive US and Canadian markets, for example, the company has introduced a number of measures designed to stabilise the company's market share, including the launch of new products such as Dentyne Ice and the relaunch of Trident White.
It has also continued to drive growth in the important gum markets of Latin America and the Far East - where the businesses in Mexico, Japan and Thailand in particular continued to perform well.
Conscious of the need to integrate the Adams business as rapidly as possible, Cadbury has pulled out all the stops in its efforts to complete the transition in key markets. For example, in the UK, India, Spain and Argentina, the integration has been completed ahead of schedule.