Secondly, they can increase their asset in order to grow the buying power. When Cadbury and Schweppes were two individual companies, they would not help each other free if one of them was lack of asset, thus they would loss a lot of opportunities to reach acquisitions. Merging make more relationship between Cadbury and Schweppes, there were more free to use asset belongs to both company. Also, the larger amount asset would help them to acquire better brands. Plenty of evidences can be shown for this benefit, the obvious one is that Cadbury Schweppes acquired the Duffy-Mott company, which was the largest apple processors in the world in 1982. Thirdly, they can be economies of scale. Because their products are similar, it was easy to promote the business. For the internal economies of scale, when they were in common on the product, it was easier to produce new products together. Cadbury Schweppes can create new product like chocolate drink. For external, being a multinational can get the lowest raw material among different countries and sell at highest profit in another country.
The last point, merging is helpful to combat competitors. Cadbury Schweppes invested a great deal of money on brands DR Pepper and Seven Up to against Pepsico, and it spent 70,000,000 pounds in acquiring Lion Nathan Group which a bottle company of Pepsico. Those actions cost a large amount of money, which was not so easy to be achieved by the single company Schweppes.
However, there were some disadvantages, too. When Cadbury and Schweppes merged, there must have redundancies of employment, in this case, a lot of employees would loss their jobs. The different cultures of these two companies will be difficulties for communicating, because Cadbury was private limited company but Schweppes was public limited company. In other word, the structure of Schweppes was flatter than Cadbury’s and lower position staffs had more power than the staffs in Cadbury. It would take time to adapt this situation.
Growth
Cadbury Schweppes makes profits during ten years from 1991 to 2000. 1997 is a harvest year, because Cadbury Schweppes reached the peak, which is £981 million. The lowest point £315 million was reached rock in 1991. Before 1999, free cash flows of Cadbury Schweppes were all under £200 million. However, it gained £401million in 200, which was 2 times as it was before 1998.
The reports on financial performance for the 24 weeks to 17 June 2001, which consists 26% increase of sales, 24% growth of underlying operating profit and 5% rise of dividends per share (pence), shows us that there are quite good process .
The sales of beverages in slow market American, whose demand for Cadbury Schweppes has been stable for the long term of same product, increased dramatically from £648million to £1,001million. Both Dr Pepper and Seven Up were responding to the new challenges. Mott’s was the reason to the continued growth in European market. Conversely, Europe was the most important market for the confectionary of Cadbury Schweppes, which consumed £680million out of the total consumption in the world £1010million. In the UK, Cadbury Trebor Basssett performed very well due to the strong sugar volumes. In France, the reasons for rising were that Hollywood business was proceeding and sugar-free gum was launched. In conclusion, the most important part of the growth was by adding a number of brands and businesses, such as: Slush Puppie and Carteret in the US, Spring Valley and Wave in Australian and Mantecol in Argentina.
There are more detailed information in the Balance sheet and Group Profit and Loss Account, which we can calculate some ratios to measure whether the business of Cadbury Schweppes in 2001 was better than 2000
The profit margin ratio declined from 15.8% to 14.8%. The result indicates that the company got less profit for each product than 2000. The reasons for the decline is the over expenses-goodwill amortisation and major restructuring cost, which were both spent in acquiring. It seems that there were too many acquisitions that made the ratio dropped. Whereas, acquisitions can be considered as long investment, it will make more profit in the future for Cadbury Schweppes. For instance, the Mantecol which Cadbury Schweppes merged 2001 had made profit for it in Argentina. It could be proved furthermore by return on capital employed ratio which shows how much can shareholders get back from their investment. The higher percentage of 11.1 tells that there were more money rewards from investment because of the right acquisitions.
From cash flow statement for 2001 interim result, which shows the free cash flow was £11million more, it seems that Cadbury Schweppes managed cash more carefully than 2000. In fact, the £11million more free cash was mostly from financing which was £262million, new cash inflow from financing and decrease in cash.
The statement shows the increase on group operating profit, which was from £278miilion to £338million, while the higher group operating profit led to £38million more interest paid, that means there was only £22millon more profit made in balance. Cadbury Schweppes spent a large amount of £188 million on acquisition in 2001but none in 2000. In the other hand, there was near £200 million inflow earned from the acquisitions for 24 weeks ended 17 June 2001 and none for the whole year 200. Compared the free cash flow minus £57million for the first half of 2000 with the cash flow £401million for the whole, we can assumed that the cash flow minus £46million would became to at least £412million. The reason for that is that investments are usually made at the first half year and profits are earned at the next half year.
Organisation configuration
Generally, the organisation structure of Cadbury Schweppes can be shown below:
The third structure is divided by the areas of activity, which are finance, operation, human resources and strategy, the fourth one is separated by products and markets respectively. The main advantage of this functional structure is to concentrate the specialises and facilitate easier managerial control. If Cadbury Schweppes chooses to operate under territorial structure whose third structure is divided by the market areas, it will take a long time for top director to make decisions, because its products are sold in over 200 countries and six regional operations. For instance, when the chairman needs the final financial report of Cadbury’s Diary Milk in all the markets to inspect the sales, it can be passed directly from Chief Financial Officer in the functional structure, but it has to be collected from all the departments for one product in the territorial structure. On the other hand, there is risk of the specialist areas to be too short-sighted and too concentrate on own operation not the whole organisation. In addition, Cadbury Schweppes can’t give attentions to particular markets. Whereas the main advantage for territorial structure, which is also the main reason for it to be large organisations’ favourite, is that it allows companies to focus on the unique nature of an area and develop specific skills and approaches to suit the needs of the region. Why does Cadbury Schweppes which is multinational give up this attractive structure and choose functional structure? The reason for this is that this company develops mostly by acquiring company which has existed for a fixed period in different countries. For example, Cadbury Schweppes acquired Orangina which has been famous company in France and sold the products with the same name but different company in the same market-France, thus it need not to do market research for adding a new brands into the company. In that case, the main advantage of territorial structure is not quite useful to Cadbury Schweppes, which prefers better management more. Companies might do some change because of new policies. Because Cadbury Schweppes nearly finish the acquisition policy and the operational performance is perfect, Cadbury Schweppes separated responsibility from operational department to strategy to prepare a new policy for this company. After this new policy finishing, Cadbury Schweppes will need to focus on operation again, thus there will be some change among the functions again. There might be some changes in employment, too. In 1999, in order to operate the policy of opening new international markets, Cadbury Schweppes appointed Derek Bonham because of his leadership and broad international business experience with many organisations. Recently, Cadbury Schweppes changed the Deputy Chairman for a new policy.
In other words, the structure of Cadbury Schweppes also is decentralisation. There are two reasons for that. Firstly, Cadbury Schweppes is widely dispersed geographically, so it gives power to every single business in each countries, such as: Orangina-Pampryl operates as a stand-alone business in France and Snapple Beverage Group takes the responsibility for bottle , sales and marketing for both Yoo-Hoo and Orangina brands in the US and Canada. That means the lower level of managers have power to make decisions, thus the operation will be efficient. For example, if machines are broken in Orangina-Pampryl in France, the manager can make decisions whether to buy new machines or repair them without reporting to headquarter, therefore, it won’t delay supplies. Another reason is that the wide range of products and services, it needs the leaders have specific knowledge of particular products. Cadbury Schweppes appointed Todd Stitzer to the Board because of his knowledge of Dr Pepper and Seven UP. In the future, all the decisions about Dr Pepper and Seven Up can be report to Todd Stitzer directly.
In the decentralisation, it applies for high quality managers even in lower levels, because they will need to make important decisions, which can decides whether make profit or waste money for the company. I am going to use the same example above-Orangina-Pampryl. When the manager makes a decision, he/she has to check out the causes first. If they are because of the long term use, new machines will need to be bought, or it will take long time to repair them, thus the production will be delayed. If they are caused by some small problems, they just need to be repaired, or it will waste money.
From the organisation structure diagram of Cadbury Schweppes above, we can easy find that the span of control of Chief Executive Officer is four, follow by these four authorities, there are six regional operations for each function. The board span of control determines that the structure of Cadbury Schweppes is flat.
In summary, Cadbury Schweppes is belongs to a divisional form configuration, which illustrate that a organisation holds together a number of disparate activities and operations with a central core of administration or headquarter. The headquarter can decide whether to establish, expand, sell or close down each of divisions.
Prepare for strategy
Last five years, there are a series of agreement about Cadbury Schweppes sells brands to coca-cola. Everyone is worrying about whether this company is declining. In fact it is not necessary. Because Cadbury Schweppes did most of transactions in North America, Austria and New Zealand, which have been slow markets for some old brands, selling them when they have value can make more profit than keeping them. Products of life cycle will be a good illustration. Select Schweppes which is one of those brands to be an example and draw its life cycle blow. Before Cadbury Schweppes launch it in North America, it is the development stages (in red) for this company preparing. Since it was launched, it started to make profit, which is the stage called growth (in blue). In twentieth century, Cadbury Schweppes has got a considerable market share for Schweppes in North America, Schweppes reached to maturity (in orange) of the life cycle. Recently, the profit made by Schweppes started decreasing; it turned to the stage named saturation (in purple). As the diagram, the profits of Schweppes will keep on declining because of new product establishment if it still be sold in North America. Therefore, Cadbury Schweppes sold its brands is not because of poor performance, in fact, it is reserving money to operate the new strategy.
Future Challenges
The financial report illustrates that the main profits of Cadbury Schweppes is from Europe confectionery and North America Beverages although it has expanded all over the world. In the future, Cadbury Schweppes will invest on many new markets in Asia, India and Middle East. It is also going to open new markets by promoting different types of products in old markets, such as: develop confectionery in North America and promote beverages in Europe. In addition, Cadbury Schweppes is going to invest in other types of businesses, such as: sugar, chewing gum. Furthermore, buying shares of famous companies to make extra profit is the other purpose for Cadbury Schweppes in the future.
SWOT analyses
Strengths
- Long history up to 200 years
- Cadbury and Schweppes have been awarded Royalty.
- The third largest beverage company in the world
- The fourth largest confectionary companies in the world
- Products are sold over 200 countries.
- Profits are increasing year by year.
Weakness
- Very few new products are created by own group.
- Small range of products.
Opportunities
- Expand into new markets
- Produce new products
- Try different types of businesses.
Threat
- Coca-cola.
- Nestle.
- Supermarket own brands
Conclusion
To sum up, Cadbury Schweppes has only 33 years history for its new life with strong market networks and wealthy assets that gained by both Cadbury an Schweppes. This forceful background enables it to have much more free cash flow to acquire other strong brands in order to fresh its markets, which is the main strategy Cadbury Schweppes takes for making profits. It is seems that this company is rely on acquisitions too much. It will be much cheaper if they create new products by itself. Cadbury Schweppes operates under a decentralisation and flat structure, which gives lower level manager power to make decisions. In order to reduce length of decisions making cycle, the top leaders delegates more power to lower directors in different markets.
In the future, this company will expand into larger range of products, which has begun with chewing gum and sugar, new markets, in particular, Asia and Africa.
Bibliography
- Evans, D, business (1995), London, Financial Times Professional Limited
- Hall, D, business (1996), Lancashire, Causeway Press Limited
- Sutherland, J, Organisation Structures & Processes (1997),
London, Pearson Professional Limited
- Symons, D, Business Studies(1992), Business Studies, Sunderland, Business Education Publishers Limited
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Reference
2001 Interim Results
2001 2000
Gross profit ration: 372/2458×100%=25.1% 291/1954×100%=14.9%
Net profit ration: 363/2458×100%=14.8% 309/1954×100%=15.8%
ROCE 363/3258×100%=11.1% 309/2869×100%=10.8%
Stock turnover: 508/2086×365=88.9 443/1663×365=97.2
Debtor turnover: 980/2458×365=145 781/1954×365=147
2001 Interim Results
2001 Interim Results
Management & Finance
Cadbury Schweppes
XI HE
EMF
