The report shows a world wide trend of chocolate manufacturers increasingly looking to invest in more diverse areas, as consumers turn to either health or premium products.
Elena Ruiu, a Euromonitor analyst, told ConfectioneryNews.com that bans on junk food advertising have also resulted in lower profits in certain areas for Cadbury.
"What's more, the salmonella scare last year had an adverse affect on the company's image," she added.
Cadbury has started to make radical changes to its organisation.
However it still needs to improve its margins in confectionery by 5 percentage points between now and 2011, she said.
She advises Cadbury to do more work on focusing its brand portfolio on the gum, health and organic chocolate markets.
The gum market offers better prospects than confectionery with an annual average growth rate of 3.3 per cent over the 2007 - 2011 period, compared to the confectionery growth rate of 2.2 per cent, her report says.
Cadbury has already made some moves in this direction, and Ruiu notes that last February the company launched its Trident gum in the UK market.
Previously Trident was only sold in the US.
Earlier this month, Cadbury also bought Turkish Intergum, one of the top five chewing manufacturers in the world.
Cadbury's financial results indicate that its chewing gum brands are already showing potential for growth within the market, with the company's revenues in the segment surging by 10 per cent in 2006.
However she suggests that Cadbury should develop its functional chewing gum ranges, as sales of this product have increased on average by over 15 per cent per year since 1998.
Functional gum in general is marketed in Western Europe as having teeth whitening and oral care properties, but confectionery companies will probably develop innovative products that boast energy boosting qualities, she said.
Ruiu warns that Cadbury will need to keep up with competitors such as Wrigley, which is currently at the forefront in developing functional gum.
Wrigley's latest innovations even include a recently patented Viagra chewing gum, she said.
Another potential area of growth for Cadbury is in the health and wellness market, she said.
With the purchase of the functional candy company Sansei Foods in Japan, Cadbury has made a strategically good move in the market, she said.
Japan is the second largest health and wellness confectionery market in the world after the US, worth nearly US$3bn in 2006, according to Euromonitor.
Cadbury is itself keen on using the recent purchase of Sansei Foods in Japan to broaden its confectionery range.
In a previous interview with ConfectioneryNews.com, Cadbury spokesperson Rowan Green, said the company is eager to develop products targeting the growing demand for low-calorie, low-fat foods.
"We are keen to follow the well being trend
but it's not just about taking things out or reducing," said Green.
"We're also interested in organic products or fortification, such as added vitamin C." Green said that the company plans to release a low-calorie version of Bassets Allsorts later this year, following the launch of the Maynard's Wine Gums Light line and Cadbury Highlights, a chocolate bar that contains 95 fewer calories than Dairy Milk.
The one confectionery sector that could benefit from increased investment is Cadbury's Green & Black chocolate range, as it "ticks all the boxes for the current trend in chocolate -- organic, gourmet and high cocoa content" , she said.
"Green & Black profits increased 60 per cent in the financial year 2005 - 2006," Ruiu said, "and Euromonitor predicts that the organic chocolate market as a whole will grow 7/8 per cent in Western Europe."
Cadbury is currently the UK's leading supplier of organic chocolate, but the report warns that to hold this position it will have to compete in the US with Mars, which has recently invested heavily in its CocoaVia range, and with Hershey's Goodness Chocolate bars.
European competition will come from premium manufacturers such as Lindt, which are also keen to cash in on the organic craze, she said.