Cadbury reports good third quarter performance

Cadbury plc released its Interim Management Statement covering trading for the third quarter ending 30 September 2008, organisation changes and an update on cost reduction programmes. The company reports good third quarter revenue performance with +6% despite cycling strong prior year, bringing year-to-date growth in revenues to 7%. Furthermore, the management announced a streamlined organisation to accelerate decision making and improve execution and details of the new "Vision into Action" for cost reduction initiatives.


Todd Stitzer, Chief Executive Officer, said: “The good third quarter performance was in line with our expectations. Our new streamlined organisation, together with additional cost reduction initiatives, will increase the focus on implementing our strategic plans and underpin delivery of our margin targets. Despite weaker economic conditions, we expect strong profit growth for the year and reconfirm the revenue and margin guidance we gave in July.”


Cadbury announced important changes to its organisation and management structure which will strengthen the focus on globally led categories and further streamline the organisation. The four region operational structure will be eliminated, leaving seven business units which will report directly to Todd Stitzer, CEO. At the same time, Cadbury is strengthening our global chocolate, gum and candy category structure, further increasing the focus on category development.


As a result of these and related changes, approximately 250 people will leave the business including a number of senior managers. "We expect these changes to underpin delivery of our Vision into Action margin goal. The cost of this programme will be funded from the total restructuring programme announced in June 2007," Stitzer said. In June 2007, the management presented the Group’s VIA strategy which included a significant increase in margins to mid-teens by 2011. Part of achieving this goal included investing around £650m, including £200m of capital expenditure, to drive a major reduction in SG&A and supply chain costs, the benefits of which would be progressively realised over the period to 2011. As part of this continuing programme of management action, Cadbury noted three further restructuring measures within its operations, the reconfiguration of chocolate manufacturing in Australia and New Zealand as well as a review of the confectionery supply chains in Australia and New Zealand. Todd Stitzer: "As part of the programme, we expect to reduce SKUs by around 30% and see an incremental improvement in customer service. Around 330 positions will be removed over the next two years."


In European operations, Cadbury is proposing to establish a single, state-of-the-art science & technology centre of excellence in Europe focusing on gum and candy. Based in Switzerland, it would consolidate three separate facilities and builds on the centralisation of commercial and supply chain management for Europe in Switzerland which has been largely put in place during 2008.
It was also reached an agreement with a global partner to progressively provide facilities management and related services to Cadbury. Subject to consultation, this will likely result in the transfer of a significant number of existing roles and third party contracts over the coming years. Taken together, projects which will deliver around 60% of the total planned cost savings have been announced to date.


In Britain, Ireland, the Middle East and Africa (BIMA), revenues grew by 10% despite lapping strong prior year comparatives. This reflected strong performances from both our developed market operations in Britain and emerging markets, particularly in South Africa where revenue growth was 22%. In Britain, growth of 11% benefited from a significant recovery in candy, which in the same quarter last year was adversely impacted by floods at the factory in Sheffield, a strong innovation programme supported by further increases in marketing and a focus on strengthening core products. Key product launches included the new range of Cadbury Dairy Milk bars - Cranberry & Granola and Apricot Crumble - and the re-launch of Wispa.
In Europe, revenues were 4% ahead in the quarter. Overall, the gum portfolio performed well in difficult market conditions, driven by market share gains in France, Northern Europe and Russia. Integration of the recent Intergum acquisition in Turkey has progressed well with major changes in route to market activities now starting to benefit market share and revenue trends. The overall rate of growth in Europe was held back by the market slow-down in France, Spain and Northern Europe and the near term impact of route to market changes in Russia.


In the Americas, revenues were ahead 7% in the quarter, reflecting good growth in South America and the US, partly offset by a weaker performance in Canada. In the US, candy business, driven by Swedish Fish and Sour Patch Kids, performed well. Compared to recent trends, the US gum market grew more slowly in the quarter. The group sustained a strong market share and in late September we announced an 8% increase in US gum prices, which will be implemented through the fourth quarter. Growth in our emerging market businesses in Latin and South America remained strong, particularly in Brazil where the business delivered strong revenue growth in good market conditions.


In Asia Pacific, revenues were 2% ahead in the quarter, with continued growth in confectionery, up 5%, partly offset by a weaker quarter in Cadbury s Australian beverage business where revenues were 5% lower. Confectionery growth was very good across key Asian emerging market businesses which had a strong quarter, with revenues up 19%. In particular, India and South East Asia delivered strong double-digit increases in revenues on the back of continued market growth, new product launches, including new variants of Bubbaloo, and promotional activities. In Australia, confectionery revenue was impacted by year-on-year changes in promotional phasing and frequency and some trade de-stocking.