Pages: 1
Cadbury shares slump on failure to return cash
(Click here to view the original thread with full colors/images)
Posted by: forwardone
Cadbury Schweppes has told its shareholders this morning that they will not receive a penny when it splits its confectionery and soft drinks business later this year.
In a surprise U-turn, the group said that because of the turbulence in credit markets it has become clear that the two separate companies will need the cash to each have investment grade credit ratings. The news, along with a drop in full-year profits, saw the shares slip nearly 6pc.
Analysts at Panmure Gordon said today: "While we always thought the maths of a cash return to shareholders was marginal at best, and had assumed just a 20p payout, the fact that Cadbury is going back on its previous statement is not very impressive."
Cadbury's has offered its shareholders an alternative sweetener today however - an 11pc hike in the total dividend.
Todd Stitzer, Cadbury's chief executive, said: "Although the economic outlook for 2008 remains uncertain, we are encouraged by the good trading momentum we have seen in the new year and our continued progress on cost reduction initiatives. We expect meaningful margin progression in 2008."
The maker of Dairy Milk, Trident chewing gum and 7-Up had net debt outstanding of £3.2bn at the end of 2007. On the demerger, a proportion of the debt will remain with the confectionery company Cadbury, and the balance is to be repaid.
advertisement
The newly listed drinks business Dr Pepper Snapple Group (DPSG) will be financed with new debt. The group said it is currently working with five major banks to arrange the financing.
The news came as the group reported a 2pc fall in pre-tax profits to £915m, following a £30m loss on the failed launch of the sports drink Accelerade.
Cadbury's confectionery arm meanwhile enjoyed its best revenue growth in a decade, up 7pc, driven by a 26pc growth in Trident gum.
Graham Jones at Panmure said: "Results were in line, but Cadbury needs to be clearer as to what its definition of 'meaningful' margin expansion is. We do not see dramatic hidden value in Cadbury Schweppes shares in the near term."
Looking ahead to the demerger, which is on track for the second half of this year, the company has announced the appointment of Roger Carr, current deputy chairman, to chairman of Cadbury. Wayne Sanders, former president and chief executive of Kimberly-Clark, the maker of Huggies nappies, has been appointed chairman of the new drinks group DPSG.
The company plans a 6pc increase in the final dividend to 10.5p a share. Together with the 22pc rise in the interim dividend to 5p, this brings the total dividend for the year to 15.5p, a jump of 11pc - to be paid on May 16.
Cadbury Schweppes's shares were down 34.5, or 5.6pc, to 578p in morning trading.
Telegraph.co.uk